Company · 96 PIPELINE ANALYSIS 96 Japan Pharma pipeline overview 96 Company launch portfolios 102...

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CompanyPeer Set Overview

Ref Code: DMKC0194392Author: PharmaVitae

Peer Set Overview : Company 2

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Published on 02 July 2018



CONTENTS

6 OVERVIEW

10 About this report

10 Key questions answered

11 Highlights

13 EXECUTIVE SUMMARY

13 Strategizing global growth in a fast-evolving industry landscape

24 INDUSTRY LANDSCAPE

24 Japan Pharma’s changing industry landscape

31 STRATEGY ANALYSIS

31 Innovation is more important than ever for sustainable growth of Japan Pharma

31 Strategic context and trends

31 Rationalization

34 Consolidation

35 Reinvention

41 REVENUE ANALYSIS

41 Global prescription pharmaceutical revenue overview

41 Company performance ranking

48 Regional overview

61 Top 20 products

66 THERAPY AREA ANALYSIS

66 Global overview

71 Oncology: analysis and trends

80 Central nervous system: analysis and trends

85 Cardiovascular: analysis and trends

91 LIFECYCLE ANALYSIS

91 Lifecycle performance




LIST OF FIGURES

96 PIPELINE ANALYSIS

96 Japan Pharma pipeline overview

96 Company launch portfolios

102 BIBLIOGRAPHY

14 Figure 1: Aging and declining Japanese population, 1950–2050

15 Figure 2: Government incentives – the stick approach

16 Figure 3: Impact of government mechanisms

17 Figure 4: Government incentives – the carrot approach

18 Figure 5: Phase I–III clinical trial starts by Top 20 Pharma according to the Scrip 100 League Table versus drug approvals in

the US, EU, and Japan, 2008–17

19 Figure 6: Phase I–III clinical trial starts by Japan Pharma versus drug approvals in the US, EU, and Japan, 2008–17

20 Figure 7: Proportion of Phase I–III clinical trial starts by Japan Pharma with a site in Japan, 2008–17

21 Figure 8: Navigating the complex influence of domestic headwinds and government measures

22 Figure 9: Opportunities in China

25 Figure 10: Aging and declining Japanese population, 1950–2050

28 Figure 11: The revision of branded drug prices promotes replacement by generics and encourages innovation

35 Figure 12: Scope of potential Eisai and Otsuka merger

36 Figure 13: Japan Pharma’s revenue sources, 2017–27*

38 Figure 14: Japan Pharma alliance deals involving oncology and CNS indications, 2008–17

40 Figure 15: Japan Pharma’s alliance deals involving regenerative medicine, 2008–17

41 Figure 16: Japan Pharma’s prescription pharmaceutical performance, by sales ($m) and growth rate (%), 2014–27*

42 Figure 17: Japan Pharma rankings, 2014–27*

46 Figure 18: Japan Pharma regional trajectory, 2017–27*

47 Figure 19: Japan Pharma mid-term growth and decline, by company, 2017–22*

48 Figure 20: Japan Pharma long-term growth and decline, by company, 2022–27*

66 Figure 21: Japan Pharma therapy area sales split, 2012–27*

70 Figure 22: Japan Pharma sales, by company and primary therapy area (%), 2017–27*, figure one of two

71 Figure 23: Japan Pharma sales, by company and primary therapy area (%), 2017–27*, figure two of two

80 Figure 24: Japan Pharma alliance deals involving key oncology therapy types, 2008–17

91 Figure 25: Japan Pharma peer set revenues by lifecycle position, 2017–27*

92 Figure 26: Japan Pharma lifecycle revenue weighting, 2017–27*

95 Figure 27: Japan Pharma’s loss of market exclusivity portfolio, 2014–20*

96 Figure 28: Japan Pharma’s pipeline overview ranking, June 2018




LIST OF TABLES

7 Table 1: Pharmaceutical product sales for the 10 representative Japanese companies in PharmaVitae’s Japan Pharma peer

set ($m), 2017–27*

27 Table 2: Pricing premiums given to medicines that can demonstrate benefit over comparators

43 Table 3: Japan Pharma sales, by company ($bn), 2017–27*

46 Table 4: Japan Pharma peer set market share analysis, 2017–27

50 Table 5: Japan Pharma sales in the US, by company ($bn), 2017–27*

53 Table 6: Japan Pharma sales in the five major EU markets, by company ($bn), 2017–27*

56 Table 7: Japan Pharma sales in Japan, by company ($bn), 2017–27*

59 Table 8: Japan Pharma sales in RoW, by company ($bn), 2017–27*

62 Table 9: Japan Pharma’s top 20 products ($bn), 2017–27*

68 Table 10: Japan Pharma primary therapy area sales ($bn), 2017–27*; sorted by 2022* sales

73 Table 11: Japan Pharma’s oncology sales, by company ($bn), 2017–27*

81 Table 12: Japan Pharma CNS sales, by company ($bn), 2017–27*

86 Table 13: Japan Pharma cardiovascular sales, by company ($bn), 2017–27*

89 Table 14: Japan Pharma hypertension sales, by company ($bn), 2017–27*

97 Table 15: Japan Pharma launch portfolio sales, by company ($m), 2017–27*

100 Table 16: Top 10 Japan Pharma pipeline sales, by brand ($m), 2017–27*




OVERVIEW Japan Pharma must navigate complex pressures and opportunities presented by an aging and declining Japanese population, as wellas government measures designed to encourage innovation while controlling healthcare spending, to steer a path towards long-termglobal revenue growth. Note: 2017* refers to the 2017 Japanese fiscal year, which is from 1 April 2017 to 31 March 2018.



Table 1: Pharmaceutical product sales for the 10 representative Japanese companies in PharmaVitae’s Japan Pharma peer set ($m), 2017–27*

Rank Company 2017 2022 2027 Δ2017–27

2017–27CAGR

Notes

1 Takeda 15,594 16,824 17,286 1,692 1.0% Takeda is set to remain the largest grossing pharmaceutical company in PharmaVitae’s JapanPharma peer set. Before factoring in its planned acquisition of Shire, Takeda’s prescriptionpharmaceutical product revenue will account for approximately 25% of the peer set’s totalpharmaceutical sales throughout the forecast period. Growth will be driven by continued uptake ofNinlaro in multiple myeloma, and Entyvio in inflammatory bowel disease.

2 Astellas 11,987 11,551 11,298 -689 -0.6% PharmaVitae expects Astellas’s prescription pharmaceutical product revenue to sharply decline inthe near term, with three out of four of the company’s largest products facing generic competition,which is set to cut approximately $2.3bn from Astellas’s top line over the forecast period.PharmaVitae predicts the company will return to growth in 2020*, driven by expansion of the peerset’s largest grossing product Xtandi in prostate cancer. However, PharmaVitae expects this growthto fail to offset earlier losses, and Astellas’s pharmaceutical product sales to decline at a CAGR of0.6% out to 2027*.

3 Otsuka 7,143 9,262 9,703 2,560 3.1% PharmaVitae predicts Otsuka will experience the largest monetary growth in prescriptionpharmaceutical product revenue over the forecast period within the peer set, driven by psychiatrydrugs Rexulti and Abilify Maintena. PharmaVitae expects Otsuka to be buoyed by assets acquired inthe US, and AVP-786 to become the company’s largest grossing product over the forecast period.

4 Daiichi Sankyo 7,749 7,255 6,706 -1,043 -1.4% PharmaVitae expects Daiichi Sankyo to experience the largest percentage decline in prescriptionpharmaceutical product revenue over the forecast period within the peer set, as the company facesgeneric erosion of its key cardiovascular portfolio.




5 Eisai 4,418 5,162 6,698 2,280 4.2% PharmaVitae forecasts Eisai to grow at a CAGR of 4.2% over the forecast period, driven by thesuccess of its oncology and epilepsy products in offsetting the long-standing generic erosion ofAricept and Aciphex/Pariet, as well as more recent generic competition for its largest grossingoncology product Aloxi. Eisai’s long-term outlook hinges on the success of aducanumab inAlzheimer’s disease, which PharmaVitae forecasts to become the largest current pipeline asset inthe peer set.

6 Sumitomo Dainippon 4,303 5,368 4,225 -78 0.2% Sumitomo Dainippon is set to experience strong mid-term growth with the extended marketexclusivity of its largest grossing product Latuda, and continued uptake of the company’s respiratoryand oncology portfolios. However, the company will experience a sharp erosion of its prescriptionpharmaceutical product revenue in 2024* as generic competition launches against Latuda, eatingaway at previous revenue gains.

7 Shionogi 2,930 3,652 3,834 904 2.7% Shionogi is set to experience modest growth as its portfolio of CNS and HIV products offsets genericerosion of its leading dyslipidemia drug Crestor.

8 Ono 2,414 3,361 3,833 1,419 4.7% Ono is set to make significant progress over the forecast period, fueled by Opdivo’s success inoncology. PharmaVitae expects Ono to climb from its number 10 position in the peer set in 2017*to number 8 by 2027*.

9 Mitsubishi Tanabe 3,877 3,788 3,640 -237 -0.6% Mitsubishi Tanabe’s outlook is negatively impacted by a key patent expiry for Gilenya in 2019, andsubsequent end to associated royalties from Novartis. Growth in the company’s metabolic disordersportfolio, and successful expansion into the US with Radicut, will fail to offset earlier losses, andPharmaVitae expects Mitsubishi Tanabe to decline at a -0.6% CAGR over the forecast period.




10 Kyowa Hakko Kirin 2,543 2,223 2,253 -290 -1.2% PharmaVitae expects Kyowa Hakko Kirin to lose ground over the forecast period due to genericerosion of its hematology portfolio, and a difficult domestic market. Kyowa Hakko Kirin’s launchportfolio will add over $750m out to 2027*, but will fail to offset losses elsewhere.

Grand total 62,958 68,446 69,476 6,518 1.0%

Note: totals may not sum due to rounding; CAGR = compound annual growth rate; CNS = central nervous system

Source: Datamonitor Healthcare; PharmaVitae Analytics




ABOUT THIS REPORT Japan Pharma faces a challenging period as companies are negatively affected by ongoing generic erosion of former blockbusterproducts, and government policies intended to rein in increasing healthcare costs inadvertently cut domestic revenues. Nevertheless,its healthy launch portfolio and access to cash reserves for deal-making produce a positive outlook for PharmaVitae’s Japan Pharmapeer set, and PharmaVitae forecasts the 10 representative Japanese pharmaceutical companies to add $6.5bn in sales out to 2027*,generating $69.5bn. PharmaVitae explores and visualizes market dynamics in the Japan Pharma peer set out to 2027* through analysis and in-house salesforecasts for more than 320 products. By delving deeper into revenue trends, therapy area performance, and strategic drivers,PharmaVitae’s analysis is vital to understanding how Japan Pharma is set to navigate headwinds to steer towards long-term growth.

KEY QUESTIONS ANSWERED Explore and visualize market dynamics in the PharmaVitae Japan Pharma peer set out to 2027* using 10-year in-house salesforecasts segmented by the following sections:

Strategy analysis

Revenue analysis

Industry Landscape | What are the specific domestic challenges facing Japan Pharma?•

Strategy Analysis | What are the global revenue growth strategies being adopted by Japan Pharma?•

Revenue Analysis | Which are the top performing companies, products, and regions for Japan Pharma out to 2027*?•

Therapy Area Analysis | Which therapy areas will be the biggest drivers and resistors of topline growth out to 2027*?•

Lifecycle Analysis | How will drug launches offset market exclusivity losses to maintain a positive outlook?•

Pipeline Analysis | Which companies have the most valuable pipeline assets and launch portfolios?•

How is Japan Pharma using licensing deals to propel growth, and in what therapy areas are deals concentrated?•

How is Japan Pharma capitalizing on immuno-oncology using M&A and deal-making?•

How is Japan Pharma expanding its global footprint to maximize revenue?•

Which will be the best performing companies out to 2027*?•

How will Japan Pharma perform across the US, Japan, five major EU markets (France, Germany, Italy, Spain, and the UK), andRoW?

•




Therapy area analysis

Lifecycle analysis

Pipeline analysis

HIGHLIGHTS

What are the detailed competitive dynamics at play in the oncology and CNS markets?•

Which companies are building leadership in specific therapy areas?•

How are late-stage pipelines positioned, and what are the most coveted launch products?•

Which therapy areas will experience the largest growth and decline?•

What are Japan Pharma’s relative growth rankings?•

Which companies are reliant on pipeline launches to drive growth?•

Which companies will be most affected by future biosimilar and generic erosion out to 2027*?•

How much is expected to be wiped off Japan Pharma’s expiry portfolio?•

What are the most coveted pipeline assets, and which companies have the most valuable launch portfolios?•

Japan Pharma’s prescription pharmaceutical product revenue is forecast to grow to $69.5bn by 2027* at a CAGR of1.0%.

•

Largest company growth – Ono will experience the highest growth rate out to 2027*.•

Largest company decline – Daiichi Sankyo will experience the largest percentage decline out to 2027*.•

Regional analysis – Strong revenue growth in the US will offset the -0.2% CAGR decline in Japan.•

Most valuable therapy areas – Oncology and CNS will remain the two most valuable therapy areas for the peer set.•

Most valuable product – Astellas’s Xtandi (enzalutamide) will be the highest selling product within the peer set out to 2027* at$4.5bn.

•

Most valuable pipeline product – Eisai’s aducanumab will become the highest selling pipeline product with $1.9bn in sales by•




2027*.

Most valuable pipeline – Astellas will have the most valuable pipeline with eight product launches adding $2.6bn to its toplinerevenue by 2027*.

•

Strategy analysis – Japan Pharma is focusing on key therapy areas of high global unmet need and turning to collaborations tofuel growth.

•




EXECUTIVE SUMMARY PharmaVitae's Japan Pharma peer set is set to meet the significant challenges presented by the aging and decliningJapanese population, as well as domestic pricing pressures, through ongoing global growth strategy adaptation.PharmaVitae forecasts the Japan Pharma peer set to add $6.5bn in annual prescription pharmaceutical product globalrevenue by 2027*, reaching $69.5bn in annual sales at a low CAGR of 1.0%. This growth will be driven by a healthy launchportfolio, which is set to add $11.4bn over the forecast period, and offset by heavy core and expiry portfolios, which are setto lose $4.8bn by 2027*.

STRATEGIZING GLOBAL GROWTH IN A FAST-EVOLVING INDUSTRY LANDSCAPE Japan Pharma will increasing rely on clinical product development and sales in the US and emerging markets as domestic pricingpressures strengthen, while domestic revenue growth will increasingly require Japan-based innovation and demonstration of cost-effectiveness for the public healthcare system. Complex challenges and opportunities facing Japan Pharma

SUPPORTING THE AGING JAPANESE POPULATION WHILE ENCOURAGING INNOVATION Japan Pharma must overcome regular government pricing revisions designed to rein in healthcare spending, and exploit governmentincentives designed to boost innovation, to realize long-term global revenue growth. Japan Pharma is a rapidly changing industry withone of its main macroeconomic challenges being the aging and declining Japanese population, and associated pressures on thehealthcare system. The Japanese population currently has a relatively “top-heavy” structure, and this pattern is set to intensify.




The extra healthcare and end-of-life care costs incurred by this population are adding to government spending, while there is ashrinking younger population and taxation base to support this. Thus, a major challenge for the Japanese government is to controlcosts while funding healthcare under the national health insurance (NHI) system.

JAPANESE GOVERNMENT PRESSURES – THE STICK APPROACH

Figure 1: Aging and declining Japanese population, 1950–2050

Source: United Nations, 2017; WHO, 2017




The Japanese government has implemented multiple measures to control healthcare spending in the face of an aging and decliningpopulation. These policies include long-held, regular pharmaceutical product reimbursement pricing revisions, which will continue tonegatively impact the global revenue growth outlook for Japan Pharma. Furthermore, these premium pricing revisions, whichcurrently occur every two years, could happen every year starting in 2020*, depending on a 2018–20* review. The premium pricingrevisions are based on health technology assessment (HTA) criteria, which have recently been made much stricter. Additionally, thefrequency of market expansion pricing revisions for products with sales exceeding JPY35bn (approximately $320m) annually will alsoincrease to four times a year from 2018*.

SETTING A HIGHER HURDLE

Figure 2: Government incentives – the stick approach





Many in R&D-based Japan Pharma view the previous HTA requirements, and system of price maintenance premiums, as moresupportive of successful innovation in drug discovery and development than the new system. The previous system was welcomed,and highly favored by industry. Nevertheless, it was likely too expensive for the government to maintain. Thus, the bar has been raisedfor new drugs to qualify as innovative, while a full HTA system is due to come into force by the end of 2018*, meaning that companieswill have to also demonstrate cost-effectiveness for the healthcare system. Together, pricing revisions are set to increase thedichotomy between the haves and have-nots, or between mid-sized Japanese pharmaceutical companies that are more reliant onlonger-listed branded products with generic competition, and potentially more innovative companies and generics firms that arebenefiting from policies aimed at their respective spectrums.

GENERICS TO FLOOD THE MARKET There has also been a significant growth in generics in Japan, which has been facilitated by Japan’s cost-conscious Ministry of Finance,and many policy changes over the past few years have encouraged the uptake of generics, including fee changes for prescribers andpharmacists, and changes to prescription forms to allow easier substitution. The domestic market share of generics by volume rosefrom 26% to 66% over 2012–16*, and is set to reach 80% by 2020*.

JAPANESE GOVERNMENT INCENTIVES – THE CARROT APPROACH

Figure 3: Impact of government mechanisms





To counteract the specific pressures facing Japan Pharma, and to support the long-term global competitiveness of the industry, theJapanese government is set to offer incentives for companies to more vigorously pursue Japan-based innovation through a proposedcompany rankings system. This system will award tiered pricing premiums based on a company’s performance in conductinginnovative drug development activities in Japan in preference to other regions. While PharmaVitae has observed a decrease in PhaseI–III clinical trial initiations by Top 20 Pharma (down 45%) and Japan Pharma (down 34%) over 2008–17, PharmaVitae has also noted a40% rise in the proportion of Phase I–III clinical trial initiations with a site in Japan by Japan Pharma during this period. Nevertheless,PharmaVitae anticipates that less than half of all Japanese pharmaceutical companies will be eligible for the highest tier status in theplanned new company rankings system.

Figure 4: Government incentives – the carrot approach





Figure 5: Phase I–III clinical trial starts by Top 20 Pharma according to the Scrip 100 League Table versus drug approvals

in the US, EU, and Japan, 2008–17

Source: Citeline; Trialtrove; Scrip




Figure 6: Phase I–III clinical trial starts by Japan Pharma versus drug approvals in the US, EU, and Japan, 2008–17

Source: Citeline; Trialtrove




ON THE RIGHT TRACK? The policy environment for Japan Pharma is a complicated mix of positive and negative government factors, depending on portfolioand business strategy, and will continue to have a major and complex influence on the strategic direction and focus of the industry.The upshot of these measures is that the innovative industry must achieve higher levels of R&D productivity, and be prepared todemonstrate the value of its products to the healthcare system. Japanese pharmaceutical products will need to jump over highergovernment hurdles to be awarded attractive domestic prices. Whether simultaneously budget squeezing and incentivizing JapanPharma to innovate will facilitate long-term revenue growth, or set the industry up for more challenges, is an open question. Navigating the new domestic playing field Japan Pharma will adopt three main strategies to steer through the maze of domestic challenges and opportunities facing theindustry, namely rationalization, consolidation, and reinvention.

Figure 7: Proportion of Phase I–III clinical trial starts by Japan Pharma with a site in Japan, 2008–17

Source: Citeline; Trialtrove




RATIONALIZATION TO CONTINUE PharmaVitae’s Japan Pharma peer set is embracing rationalization to overcome and capitalize on government measures. PharmaVitaeexpects this rationalization trend, which has involved cost savings such as job cuts and divestitures of non-core or longer-listedproducts, to continue as Japan Pharma’s core and expiry portfolios further contract. PharmaVitae believes two other main strategiesthat will gain significant traction are consolidation and reinvention as more established companies face increasing domestic pricingpressures on longer-listed products, the Japanese market further shrinks, and Japan Pharma looks to the US and emerging marketsfor sustainable growth.

CONSOLIDATION ON THE CARDS PharmaVitae believes Japan Pharma will at least partially revisit the consolidation approach seen in the 2000s as mid-sized companiesseek greater economies of scale to become more competitive both domestically and globally. PharmaVitae anticipates that JapanPharma will view consolidation as a means of absorbing compounding domestic pricing pressures, and better capitalizing ongovernment innovation incentives, to sustain profitability and R&D productivity. PharmaVitae expects mid-sized companies withestablished positions in the US, where there are potentially fewer government pressures and shorter approval times, to seriouslyconsider mergers in the near term to strengthen their US market penetration through existing commercialization rights. Companiessuch as Astellas and Daiichi Sankyo now have fully integrated operations in the US from previous deals and company acquisitions.Additionally, such mergers would potentially allow mid-sized companies to better master domestic challenges and opportunities, andhelp shore up their domestic market shares.

REINVENTION – WALKING THE TIGHTROPE PharmaVitae anticipates a rise in collaborations, and ongoing reversal of the diversification of Japan Pharma seen in the 1990s, asJapanese companies focus their R&D resources on core therapy areas of high global unmet need, and prioritize the key therapy areasof oncology and CNS. PharmaVitae also expects Japan Pharma to continue to concentrate its efforts in regenerative medicine, whereit holds a leading global R&D position, and potential first-to-market competitive edge. Additionally, PharmaVitae anticipates that JapanPharma will continue to pursue organic growth in the US, while focusing inorganic expansion efforts in emerging markets, whichpresent a significant long-term growth opportunity.

Figure 8: Navigating the complex influence of domestic headwinds and government measures





More M&A following Takeda/Shire? PharmaVitae does not anticipate further major global M&A activity in the near term from Japan Pharma following Takeda’s recentagreement to acquire Shire. PharmaVitae views Shire as the best and last chance for Takeda to become one of the top 10 globalplayers. Nevertheless, PharmaVitae believes that the Takeda/Shire merger agreement is neither an optimal portfolio or regional fitgiven Shire has recently divested its oncology assets, and is focused on the US, where Takeda already has a presence, rather than onemerging markets. Gateway to North-East Asia Japan Pharma presents an attractive partnering opportunity for emerging global companies to access the Japanese, South Korean,Taiwanese, and Chinese markets. The proximity, regulatory knowledge, and networking advantage offered by Japanese companies ispotentially highly valuable to emerging companies offering licensing deals and commercialization rights in North-East Asia.Additionally, the government incentives in place for Japan Pharma to boost clinical trial activity in Japan will potentially make Japanesecompanies more willing development partners. Furthermore, the tripartite cooperation agreement between Japan, South Korea, andChina means that clinical development collaborations with Japan Pharma may lead to faster approval times in South Korea and Chinafor products out-licensed to Japanese companies.

CHINA AWAITS PharmaVitae views recent developments in China as positive signals for the long-term growth potential of Japan Pharma. Theseevents include the extension of patent lives from 20 to 25 years, and proposed reforms of China’s Food and Drug Administrationdesigned to increase productivity and hasten regulatory review of globally developed drugs. Although there are ongoing, unfavorablepatent and drug pricing issues for Japan Pharma in China, opportunities such as the tripartite cooperation agreement between Japan,

Figure 9: Opportunities in China





South Korea, and China, which promises more sharing and recognition of late-stage clinical data and a jump start in the clinicaldevelopment process on a case-by-case basis in preference of drugs for high unmet needs, are tipping the balance more in JapanPharma’s favor. Strength in regenerative medicine Japan Pharma has a global early-stage clinical development competitive advantage in regenerative medicine, which is not fullyreflected in forecasted sales, and was likely ignited by the 2012 Nobel prize awarded to Professor Shinya Yamanaka of KyotoUniversity, who discovered induced pluripotent stem cells (iPS cells). Japan Pharma’s impressive early progress in this exciting field willpotentially be furthered by a relatively streamlined regulatory pathway for regenerative medicine created by the Ministry of Health,Labour and Welfare (MHLW). In April 2014, the government set up the Japan Agency for Medical Research and Development to helpguide R&D, and to provide a clear regulatory framework and reimbursement policies for regenerative medicine in an initiative thatwas likely also inspired by the iPS cells discovery.




INDUSTRY LANDSCAPE

JAPAN PHARMA’S CHANGING INDUSTRY LANDSCAPE Japan Pharma’s revenue growth will decelerate during 2017–27* as an aging and declining Japanese population and governmentpressures on drug prices temper the sector’s domestic pharmaceutical product sales. PharmaVitae forecasts prescriptionpharmaceutical product revenue for Japan Pharma to grow at a low CAGR of 1.0% over 2017–27*. In 2017*, sales in Japan made up44.9% of the peer set’s revenue. However, this will fall to 37.9% by 2027* as sales in all ex-Japan regions covered by PharmaVitaegrow and Japan Pharma increasingly relies on global development and commercialization for its long-term growth. Furthermore,government measures designed to rein in healthcare spending are set to increase the dichotomy between the haves and have-notsin Japan Pharma, or between mid-sized companies that are more reliant on longer-listed branded products with generic competition,and potentially more innovative companies and generics firms that are benefiting from policies aimed at their respective spectrums. Domestic market pressures Japan’s pharmaceutical market is slowing as it struggles to expand against an aging and declining population, as well as governmentpricing mechanisms intended to curb healthcare spending.

Aging population Japan is facing an aging and declining population, and resultantly the Japanese government is taking significant measures to curbhealthcare expenditure growth. According to the National Institute of Population and Social Security Research and census data, theJapanese population reached its peak in 2009, and officially entered decline in 2016, having fallen by approximately 1 million during2010–15. Japan’s total population in 2017 is projected to be approximately 127.5 million (see figure below) (United Nations, 2017), butthe pace of population decline is expected to accelerate steadily until 2045, by which time Japan is set to lose approximately 900,000residents per year (IPSS, 2017). Japan’s population is estimated to fall to 108.8 million by 2050, and to 84.5 million by 2100 (UnitedNations, 2017). Japan’s aging and declining population has been driven by:

Japanese government policies – In 2016*, healthcare costs reported by Japan’s Ministry of Finance reached JPY37.9tn, and areprojected to rise to JPY54tn by 2025* (Ministry of Finance, 2017). The MHLW has imposed multiple measures to limit healthcareexpenditure, including long-held regular pharmaceutical product reimbursement pricing revisions, and policies to encouragethe use of generics. Collectively, these mechanisms have successfully driven down the cost of drugs, and encouraged the use ofgenerics, creating an increasingly challenging business environment for Japan Pharma.

•

Decelerating growth – PharmaVitae expects growth of the Japan Pharma peer set to slow to a 1.7% CAGR during 2017–22*,before falling back further to 0.3% growth in 2022–27* as mature products are impacted by the latest government pricingrevisions. Furthermore, slower revenue growth and rising R&D expenses may hinder innovation and squeeze Japan Pharma’sdevelopment pipeline.

•

Falling birth rate – The country’s birth rate is the lowest of all the major markets (at 8.1 births per 1,000 population) (UnitedNations, Department of Economic and Social Affairs, 2017).

•




In 2015, 33% of Japan’s population was aged 60 years or older; by 2050, this will rise to 42.4%, while the proportion aged over 85years is expected to more than double over the same period (United Nations, Department of Economic and Social Affairs, 2017).

INCREASING PREVALENCE OF CHRONIC DISEASE The prevalence of noncommunicable diseases is growing in Japan as better treatments become available and patients survive longer.Noncommunicable diseases are diseases of long duration, and generally slow progression, such as cardiovascular disease, cancer,chronic respiratory diseases, and diabetes. This presents both an opportunity and a challenge for Japan. On one side, the increase inchronic, age-related diseases, where there is unmet medical need, presents an opportunity for significant advances in thedevelopment of new therapies. However, as the size of the Japanese healthcare market grows, it places considerable financial strainon the domestic public healthcare system. Pricing background For Japan Pharma, favorable pricing outcomes hinge on products receiving a price premium, which can be awarded for added benefitover comparators, or innovation. Pricing and reimbursement decisions, which are made by the Central Social Insurance Medical

High life expectancy – Japan has the highest average life expectancy worldwide (of 83.7 years) (WHO, 2017).•

Figure 10: Aging and declining Japanese population, 1950–2050

Source: United Nations, 2017; WHO, 2017




Council (Chuikyo) within the MHLW, are closely connected with most medicines being reimbursed contingent on successful pricingnegotiations. The medicine is then listed on the NHI reimbursement list. For newly launched medicines, there are two pricing options:

Novel medicines are priced using a cost-based method where drug development and manufacturing, importation, sales,administrative costs, and profits are considered. For medicines that show significant innovation, the allowed operating profit canbe increased by 50–100% compared to the average operating profit of 18.3% in 2013 (Simon-Kucher, 2014). The price is thenadjusted if a significant discrepancy exists between the calculated price and the drug's foreign price.

•

For medicines for which there are similar drugs available in Japan, the cost of the daily dose of the comparator is used toestablish a base price (similar efficacy pricing method), to which further premiums are added depending on the additionalbenefit that the new drug offers compared to the similar drug (see table below). In addition, medicines that are awardedpremiums for innovation, utility, or Sakigake designation (equivalent to a US Food and Drug Administration breakthroughtherapy designation), and that are approved in Japan before any other market, are granted an additional 10% premium (Simon-Kucher, 2014).

•



Table 2: Pricing premiums given to medicines that can demonstrate benefit over comparators

Type of premium Premium (%) Basic rules

Novelty premium 70–120 Meeting all three conditions: clinically useful new mechanism of action, high efficacy/safety, improvement of disease treatmentmethod

Utility premium (i) 35–60 Meeting two conditions of novelty premium: clinically useful new mechanism of action, high efficacy/safety, improvement of diseasetreatment method

Utility premium (ii) 5–30 Meeting one condition of above (tier i) or a formulation improvement shows a high medical usefulness

Marketability premium (i) 10–20 Orphan drug, etc

Marketability premium (ii) 5 Efficacy and effectiveness shows superiority over comparison drug

Pediatric use premium 5–20 Dosage and usage expressly includes those pertaining to children, etc

Sakigake designation premium 10–20 Newly entered drugs that have Sakigake designation, including drugs where pharmaceutical approval was obtained in Japan ahead ofother countries, etc

Source: JMPA, 2014; MHLW, 2016, 2017




PRICE REVISIONS In Japan, there is a system of biannual price revisions for ethical drugs (branded and patent protected drugs), which is designed toboth lower treatment costs and encourage innovation (see figure below). Figure 11: The revision of branded drug prices promotes replacement by generics and encourages innovation

Source: Datamonitor Healthcare, PharmaVitae Analytics; modified from MHLW, 2017

Biannual price revisions – Currently, the official NHI prices for ethical drugs are revised once every two years, based onsurveys and calculations conducted by the MHLW. In these revisions, the prices of drugs are cut according to prevailing marketprices using the similar efficacy pricing method, unless protected with a price premium.

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Consecutive revisions – The effect of price revisions has intensified recently with Japanese companies in their third year ofconsecutive price revisions owing to an irregular revision in 2017* to adjust for a 2% hike in consumption tax. The Japanesegovernment is planning another consumption tax increase in October 2019, and price revisions are set to occur annuallystarting in 2020* (see “Drastic drug pricing reform” below for more detail).

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Innovation premiums – Products granted an NHI innovation premium are highly valuable for a company because theyeffectively escape the impact of the price reductions, and can be reimbursed at a higher price.

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“Huge seller” price cuts – The MHLW also has measures in place to cut the original prices of launch drugs that have shownoverreaching growth. Those drugs that exceed initial sales projections are subject to additional price cuts. This will beparticularly important for pan-indication drugs such as Opdivo (nivolumab; Bristol-Myers Squibb/Ono Pharmaceutical), whichderive a premium price for initial approval in an orphan indication before expanding into other indications with larger patientpopulations. As an example, Japanese government officials recently reduced the reimbursement rate for Xtandi (enzalutamide;Pfizer/Astellas) by 25% to JPY2,354 per tablet, and for Opdivo by 23.8% to JPY278,000 per 100mg, after sales exceeded

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GENERIC INITIATIVES The Japanese government has also taken significant strides to promote the use of generics, and to decrease the prices of longer-listed products that are off-patent.

Drastic drug pricing reform The MHLW recently overhauled its drug reimbursement policy in a move that encourages, but also potentially threatens, innovationby Japan Pharma as it places greater risk on the profitability of newly launched branded products. The multiple changes have beenimplemented from 2018* despite strong opposition from pharmaceutical trade groups in Japan, the US, and Europe, who cite fewerincentives for companies to develop drugs in Japan.

Cost-effectiveness assessment scheme In 2018*, the MHLW is also set to introduce a new cost-effectiveness assessment (CEA) scheme to revise prices for drugs deemed“kyogaku” (best-selling).

projections.

Z2 rule – The MHLW has implemented the “Z2 rule,” under which targeted mature originator drugs will be subjected to pricecuts that are linked to the uptake of generic versions. As such, longer-listed drugs will face price revisions that are repeatedevery two years until generics account for 60% of market share by volume. The government has also initiated multipleeducational and administrative initiatives to lessen branded drug loyalty among physicians in Japan, and collectively thesemechanisms have successfully driven down the cost of longer-listed products, and promoted the market share by volume ofgenerics in Japan.

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Significant generic penetration owing to government policies – During 2012–16*, the market share by volume of generics inJapan increased from 25.8% to 65.5%. Currently, the MHLW is easily on track to meet its target of at least 80% market share byvolume for generics by April 2020 (MHLW, 2017).

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Annual price revisions – Under the recent reforms, price revisions may begin to occur annually from 2020*, intensifyingpressure on drug makers and product reimbursement in Japan.

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Price maintenance premiums overhaul – The new criteria for innovation premiums have set a higher standard and have ledto a reduced number of drugs meeting the criteria and being awarded price maintenance premiums. The new rules also add athree-year eligibility cutoff period for second- and later-in-class drugs. After making the changes in 2018*, the MHLW announcedthat the number of products eligible for innovation premiums fell by approximately 32%. Additional proposals include a newpremium coefficient tiering system of companies, which awards tiered premiums according to a company’s performance inpromoting drug development specifically in Japan in preference to other regions.

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Pilot program of best-selling drugs – A pilot program was designed to assess pricing for seven best-selling drugs with broadlabels, including Sovaldi (sofosbuvir; Gilead) and Opdivo, and to establish their cost-effectiveness. The assessments were basedon the product’s incremental cost-effectiveness ratio, or cost per quality-adjusted life year gained, similar to a model already

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implemented in the UK. The prices of most products in the CEA program were subsequently revised downwards. For example,Opdivo’s price was reduced by 23.8% for 2018* through the program.

Full implementation of CEA – The CEA program is expected to be fully rolled out in 2018* for all ethical products (CabinetOffice - Council of Economic and Fiscal Policy, 2017). This will transform the business model of Japan Pharma, further rewardinginnovative new drug development that demonstrates a real cost-effectiveness benefit, while further reducing the prices oflonger-listed drugs.

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STRATEGY ANALYSIS

INNOVATION IS MORE IMPORTANT THAN EVER FOR SUSTAINABLE GROWTH OF JAPAN PHARMA Japan Pharma is in a redefining period as domestic pressures increasingly squeeze R&D budgets, and companies seek alternativestrategies to maintain a positive outlook. These domestic headwinds mean that companies must be ahead of the innovation curvethrough internal discovery or utilization of capital to gain ownership of tomorrow’s cutting-edge treatments and technologies toachieve long-term growth. The risk-to-reward calculation for Japan Pharma is thus even more shifted in favor of companies that canafford to take greater risks, and against companies that maintain rigid business models.

STRATEGIC CONTEXT AND TRENDS Japan Pharma has evolved dramatically over the past decade as companies attempt to gain ground on their US and EU counterpartsin meeting the demands of global healthcare markets. An increasing multinational presence in Japan, alongside declining domesticrevenues for Japan Pharma and an approaching 2018/19* patent cliff (see the Lifecycle Analysis chapter), have provided the impetusfor companies to implement new strategies to maintain and expand their global footprints.

RATIONALIZATION Japan Pharma is heavily utilizing rationalization to overcome domestic pressures, including cost-conservative government measuresthat have increased the uptake of generics and decreased the prices of longer-listed branded drugs. Pressured by impending2018/2019* losses of market exclusivity, many Japan Pharma companies have implemented contingency plans and cost savings suchas divestitures of non-core businesses and/or non-core or longer-listed products, as well as job cuts, to strengthen their domesticrevenue base, boost operational efficiency, and increase their focus. PharmaVitae expects this rationalization trend to continue asJapan Pharma’s expiry portfolio further contracts, and longer-listed products become even less profitable owing to the growingpresence of generics.

Growing multinational threat in Japan – Multinational companies account for 51.2% of pharmaceutical sales in Japan, andPharmaVitae expects forecasts this to grow at a CAGR of 0.5% out to 2027* as Japan Pharma’s domestic foothold slips.Traditionally, foreign companies have formed collaborations with Japanese pharmaceutical companies to gain access to theirinfrastructure and operations, and ensure efficient and maximal access to Japan’s patient population. However, many foreigncompanies have now established fully integrated subsidiaries in Japan, which can handle all aspects of drug development, andare eliminating the need for Japan Pharma to carry out this role.

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Japan Pharma’s weakening domestic stronghold – Japan Pharma accounted for 48.8% of Global Pharma’s Japan revenues in2017*. However, PharmaVitae forecasts Japan Pharma’s share of the Japanese market to drop to 46.3% in 2027* due to multipledomestic headwinds and the growing presence and prominence of foreign companies.

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Japan Pharma is looking to external R&D assets – Japan Pharma is increasingly looking to external revenue sources forinnovation and growth, and PharmaVitae forecasts internally developed product revenues to drop from 48.5% to 40.8% of totalsales over 2017–27*.

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Divestments After a period of domestic consolidation and aggressive deal-making over the last two decades, Japan Pharma has become pressuredby challenging domestic conditions to divest non-core businesses. Larger Japan Pharma companies such as Takeda, Astellas, andcompanies founded through consolidation such as Mitsubishi Tanabe and Daiichi Sankyo, have sought divestments to follow amore streamlined and agile business model focused on prescription pharmaceuticals.

NON-CORE BUSINESSES Many of these divestments have focused on generic and over-the-counter businesses.

LONGER-LISTED PRODUCTS AND NON-ESSENTIAL THERAPY AREAS The impact of government measures to promote the genericization of healthcare products has directly shaped Japan Pharma’sdivestiture strategy, and many associated deals have involved legacy products as companies seek to reduce their domestic exposureto generics.

Divestitures have not solely focused on longer-listed brands; non-core therapy areas have also been split off to streamline R&D and

In March 2015, Daiichi Sankyo sold the controlling stake in its Ranbaxy generics business to Sun Pharma (Daiichi Sankyo,2015a/b).

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In April 2016, Takeda split off its generics business in a joint venture with Teva (Takeda, 2017b).•

In April 2017, Takeda split off its domestic consumer healthcare business (Takeda, 2017b).•

In 2017, Kyowa Hakko Kirin announced three separate agreements to sell its haulage subsidiary, its in-vitro diagnostic andmedical devices business, and its agrochemical arm (Kyowa Hakko Kirin, 2017).

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In October 2017, Mitsubishi Tanabe split off of its generics business and part of its longer-listed products business, TanabeSeiyaku Hanbai, to Nipro Corporations (Mitsubishi Tanabe, 2017b).

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In April 2016, Astellas divested its dermatology portfolio to Leo Pharma for €675m (approximately $805m), including theeczema ointment Protopic (Astellas, 2016).

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In March 2017, Astellas also announced that it had divested 16 products to LTL Pharma. Sales in 2016* of all the divestedproducts totaled JPY29bn (approximately $265m) and spanned multiple therapy areas (Astellas, 2017a).

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In August 2016, Shionogi transferred the marketing and manufacturing rights to 21 longer-listed drugs to Lupin’s subsidiaryKyowa Pharmaceutical in Japan. As a rationale for the decision, Shionogi cited “increasingly strong government policies focusedon controlling medical costs and drug prices, including measures to encourage the use of generics, which are designed to curbthe price in social welfare costs related to the rapidly aging society.” The 21 products cover the CNS, oncology, cardiovascular,and infectious diseases therapy areas, and in 2015* equated to sales of $90m (Shionogi, 2016).

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In 2017, Takeda transferred rights to its former blockbuster brands Blopress (candesartan), Takepron (lansoprazole), and Actos(pioglitazone) to its generics joint venture with Teva (Takeda, 2017b).

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therapy area focus.

Job losses Japan Pharma companies have also adopted a rationalization approach to improve regional operational efficiencies, with associatedactions often following M&A activity, or R&D downsizing, or resulting from added pressures due to loss of patent exclusivity events.After Japan Pharma’s surge in deal-making activity, there has been a simultaneous surge in layoffs as companies often quickly realizesynergizes of a merged organization.

A global shift from in-house drug development to in-licensing and/or acquiring late-stage assets to reduce risk means that JapanPharma’s own R&D departments have often been subjected to rationalization.

Headcount reductions have often coincided with loss of patent protection for key brands.

Daiichi Sankyo has announced it is to re-allocate its R&D investments outside oncology to focus on its oncology assets so thatapproximately two thirds of its R&D expenditure will be on oncology by 2020* (Daiichi Sankyo, 2017a).

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In 2017, Takeda announced it had divested its respiratory business to AstraZeneca; split off its genitourinary R&D projects inpartnership with Roivant; and split off its renal, metabolic, and cardiovascular R&D projects as a business called Scohia Pharma(Takeda, 2017b). This enabled Takeda to focus its R&D efforts primarily on its oncology pipeline projects by prioritizing resourcesand utilizing partnerships to help foster drug development in areas deemed non-core.

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As an example, 180 jobs were quickly lost after Takeda’s buyout of Ariad in February 2017. However, this is dwarfed by the 10%cut in Takeda’s global workforce (2,100 employees in the EU, and 700 in the US) after its acquisition of Nycomed in 2011(Financial Times, 2012).

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Daiichi Sankyo has consolidated its R&D activity in a bid to drive down costs. The company has closed R&D sites in the UK andGermany, and more recently in India.

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Takeda has also revamped its R&D operations, closing a key site in the UK in 2016, as well as overhauling its vaccines businessoperations in the US.

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In 2015, Eisai announced a cut of approximately 25% of its US workforce as the patent losses of Aricept (donepezil) andAciphex (rabeprazole) heavily hit sales (Eisai, 2015).

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During 2014–16*, Daiichi Sankyo, pressured by the patent expiry of Welchol (colesevelam) and the decline of its longer-listedolmesartan franchise, cut its ex-Japan workforce by approximately 23.6%, contributing to a net loss of 1,756 employeesworldwide (Daiichi Sankyo, 2017b). In 2018, Daiichi Sankyo announced a further 280 job losses to its olmesartan sales forcefocused in the US.

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In preparation for the potential patent expiry of its largest grossing product, the atypical antipsychotic Latuda (lurasidone) in2019, Sumitomo Dainippon has offered two early retirement programs a year apart to its workforce to reduce its headcountand exposure to operational inefficiencies (Sumitomo Dainippon, 2017b).

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In May 2018, Astellas announced a restructuring program aiming to cut up to 600 jobs in a revamp of its Japanese operations•




CONSOLIDATION The growing presence of multinational companies is not new, and was a major trigger for the significant domestic consolidation seenin the 2000s as Japanese companies sought out greater economies of scale to become more competitive both domestically andglobally. Astellas, Daiichi Sankyo, Kyowa Hakko Kirin, Mitsubishi Tanabe, and Sumitomo Dainippon can all trace their origins toconsolidation during this period. It remains to be seen whether another round of consolidation (as seen in the 2000s) is in store forJapan Pharma, but as these pressures grow, so will the need for companies to grow to absorb these challenges without impactingprofitability or the ability to maintain R&D productivity. The recent Shire/Takeda takeover might signal an acceleration in M&A activity among mid-sized Japan Pharma companies seekingcomplementarity and short- to long-term growth gains. PharmaVitae has identified one potential consolidation deal between Eisaiand Otsuka that stands out as the most likely to occur within the Japan Pharma peer set. Potential consolidation of Eisai and Otsuka PharmaVitae believes a merger between Eisai and Otsuka, which have similar market capitalizations, would have multiple benefits andfast-track their mutual growth. A potential deal would propel the combined company to second behind Takeda in the peer set withprojected 2027* revenue of over $16bn. Eisai and Otsuka do not trace their histories to consolidation, but are looking to build scaleto combat headwinds in Japan.

PORTFOLIO AND REGIONAL FIT Importantly, both companies have a growing presence in the US, and have enjoyed durable success in the therapy areas of CNS andoncology with relatively low exposure to generics. A potential deal would accelerate penetration into the US market, offer manysynergies, and strengthen their combined focus on these key disease areas. Furthermore, with each company set to benefit fromstrong pipeline products in Alzheimer’s disease, they would profit from a combined sales force targeting the indication.

after the launch of generic competition in Japan for Micardis (telmisartan), and prior to the US patent expiry of its big-sellingurology drug Vesicare (solifenacin succinate) in 2019 (Astellas, 2018).




REINVENTION Many companies are strategically reinventing themselves to achieve growth, and PharmaVitae has explored the following strategytrends currently utilized by Japan Pharma companies to maintain growth:

Figure 12: Scope of potential Eisai and Otsuka merger

Source: Datamonitor Healthcare; M&A Builder, PharmaVitae Analytics

partnerships and collaborations•

targeted deal-making•

emerging markets•

regenerative medicine.•




Partnerships will remain key to Japan Pharma Japan Pharma has long relied on partnerships with non-Japanese companies for access to ex-Japan markets and innovative products,and as a revenue source. PharmaVitae expects collaborations and in-licensing deals to remain integral to Japan Pharma’s growthstrategy for many years to come, despite a forecasted decline in in-licensed product sales from 16.8% to 14.8% over 2017–27*.Conversely, partnered products from collaborations, which ideally increase profit margins, will become the second largest revenuesource, growing by 5.6% over the forecast period.

Current synergistic collaborations – Previously, with little ex-Japan infrastructure, Japan Pharma companies have partneredwith non-Japanese companies to gain access to more lucrative markets and innovative products, while limiting costs. Similarly,non-Japanese companies have collaborated with Japanese companies for their domestic infrastructure to help overcomebarriers to entry, and drive penetration into the Japanese market. These synergistic collaborations ensure that Japanesecompanies have access to leading therapeutics developed outside the country, while non-Japanese companies benefit frommore efficient access to Japan’s patient populations.

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Ono/Bristol-Myers Squibb collaboration – As an example, Ono’s success has largely been driven by its immunotherapycollaboration with Bristol-Myers Squibb to develop its programmed death-1 (PD-1) receptor antibody therapy Opdivo, which hasgreatly benefited from Bristol-Myers Squibb’s global presence and other immunotherapy assets.

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Figure 13: Japan Pharma’s revenue sources, 2017–27*


Increasingly independent approach – As Japan Pharma’s global footprint continues to expand through investments andacquisitions, PharmaVitae expects collaborations for ex-Japan market access to decrease since Japan Pharma now has sufficientinfrastructure and resources obtained through previous M&As and investments to independently develop and commercializedrugs outside of Japan.

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Targeted deal-making The threat of patent expiries has served as another major trigger for Japan Pharma’s accelerated external investments. In theirattempts to globalize, cash-rich Japanese companies have taken advantage of the past strength of the yen relative to the US dollarand euro, and used M&A as their preferred approach to build global infrastructure and presence. Japan Pharma’s products obtainedthrough M&A are forecast to grow at the fastest rate, at a CAGR of 4.2%, over the forecast period, and will overtake in-licensedproducts in 2020* (see figure above).

GEOGRAPHIC TARGETS Japan Pharma peer set companies that derive revenue from ex-Japan markets have made significant ex-Japan acquisitions in the lastfew years. Takeda leads the global M&A activity having spent $28.9bn in total since 2008* on six major ex-Japan acquisitions,comprising Millennium, Nycomed, URL, Multilab, Neutec, and Ariad. Astellas (OSI and Agensys), Daiichi Sankyo (Ranbaxy andPlexxikon), Eisai (MGI Pharma and Morphotek), and Otsuka (Astex and Avanir) have also all made significant ex-Japan acquisitions.Additionally, companies that previously had limited exposure, such as Sumitomo Dainippon (Sepracor), Mitsubishi Tanabe(NeuroDerm), and Shionogi (Sciele), have also sought to strengthen their global infrastructure through M&A.

EXPANSION INTO THE US Japanese companies are as motivated as ever to grow their presence in the US, given its status as by far the most lucrative drugmarket worldwide. Indeed, many of Japan Pharma’s ex-Japan asset acquisitions have been in the US, as companies attempt to counterrevenue decline due to patent expiries and struggle with lifecycle management issues in rapidly maturing diseases.

DEALS TARGETING SPECIFIC THERAPY AREAS Japan Pharma has also used M&A to narrow its focus to increasingly novel therapeutic targets in areas of high unmet medical need,such as oncology and psychiatry. By 2027*, over 32% and 25% of Japan Pharma’s US revenues will derive from oncology and CNSindications, respectively, while the previously dominant cardiovascular portfolio will experience a sharp decline. During 2008–17,alliance deals made by Japan Pharma in oncology and CNS indications grew by 88% and 21%, respectively (see figure below) (StrategicTransactions, 2018). Furthermore, while all Phase I–III clinical trial initiations by Japan Pharma decreased by 34% over 2008–17, PhaseI–III clinical trial starts in oncology and CNS indications by Japan Pharma increased by 6%. Additionally, Phase I–III clinical trial

An example of such an approach is Takeda’s $5.2bn acquisition of Ariad Pharmaceuticals in February 2017, in a bid tostrengthen its oncology offerings in the US ahead of Velcade’s (bortezomib) loss of market exclusivity in October 2017 (Takeda,2017a). The addition of Iclusig (ponatinib) and Alunbrig (brigatinib) to Takeda’s portfolio will add approximately $700m to thecompany’s sales, helping to offset Velcade’s patent expiry, while also adding a rich pipeline of early- and mid-phase clinicaldevelopment products that will help galvanize growth beyond the forecast period.

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Otsuka has similarly used acquisitions to bolster its US business. The company’s $866m buyout of Astex in 2013, and $3.5bntakeover of Avanir, have bolstered its US presence and revenue outlook (Otsuka, 2013; 2015). Otsuka’s US sales are expected togrow by $1.8bn between 2017 and 2027*, by which time products obtained in these two deals will account for 29.5% ofOtsuka’s US sales.

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Ono has not made any major acquisitions, but fueled by Opdivo’s success, the company has announced plans to spendJPY400bn to JPY500bn ($3.6bn to $4.5bn) on acquisitions in the US over the next five years. This is a significant change instrategy, and will allow Ono to gain a strong foothold in the world’s largest healthcare market. PharmaVitae expects any futureacquisitions to largely focus on Ono’s strength in oncology.

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initiations in oncology indications as a proportion of all Phase I–III clinical trial starts by Japan Pharma increased by 177% over2008–17 (Trialtrove, 2018). CNS and oncology drugs have been attractive to Japan Pharma owing to the premium pricing that isafforded to innovative products that improve treatment outcomes.

ONCOLOGY

CNS

Figure 14: Japan Pharma alliance deals involving oncology and CNS indications, 2008–17

Source: Strategic Transactions

Eisai’s $3.9bn acquisition of MGI Pharma in 2008 secured the company’s first oncology offerings in Aloxi (palonosetron) andDacogen (decitabine) (Eisai, 2008). Oncology is now a $1bn market for Eisai, and will remain a key focus for years to come.

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Sumitomo Dainippon is expected to launch its oncology portfolio in 2019, having established its oncology business throughthe acquisitions of Boston Biomedical in 2012 and Tolero Pharmaceuticals in 2017 in deals worth up to $2.63bn and $780m,respectively (Sumitomo Dainippon, 2012; 2017a). The company’s oncology launch will have little impact on the present marketand is only forecast to generate $131m by 2027* owing to clinical setbacks. Nevertheless, these products will provide a platformfor future oncology offerings that could drive growth beyond the forecast period.

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Japan Pharma companies have used M&A to reinforce their stake in the peer set’s second largest therapy area of CNS. Theimpact of deal-making in the CNS space is most clearly seen in Otsuka’s $3.5bn acquisition of Avanir in 2015, through which it

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EMERGING MARKETS Outside of the US, Japan Pharma has identified emerging markets as key to its long-term growth and maximizing its Asian presence,often using M&A as an entry vehicle. PharmaVitae believes Japan Pharma will benefit from this approach, and forecasts the peer set’sRoW sales to grow at a CAGR of 1.8% over 2017–27*, driven by drug launches, with the RoW region accounting for 21% of JapanPharma’s total revenue by 2027*.

REGENERATIVE MEDICINE Japan Pharma holds a unique position and strength in regenerative medicine. The Nobel prize awarded to Professor ShinyaYamanaka of Kyoto University, who discovered iPS cells, has provided initial momentum for the impressive progress in this area, andinspired regulatory changes necessary for successful development. In April 2014, the Japan Agency for Medical Research andDevelopment was set up to help guide R&D, and to provide a clear regulatory framework and reimbursement policies. The potentialof these medicines is not fully reflected in current forecasts because of the early stage of their clinical development. However, ifsuccessful, this area promises to remain a unique strength for Japan Pharma for the foreseeable future.

obtained Nuedexta (dextromethorphan/quinidine) and AVP-786, which are forecast to add over $1.6bn by 2027* (Otsuka,2015). Nuedexta and AVP-786 diversify Otsuka’s CNS offerings away from schizophrenia and bipolar I disorder into newpsychiatric disorders with high unmet need and a growing number of chronic patients. Nuedexta continues to experiencestrong uptake as the first therapy approved for pseudobulbar affect, while if AVP-786 is successfully developed, it will becomethe first therapy of its kind specifically approved for agitation associated with Alzheimer’s disease.

Sumitomo Dainippon and Mitsubishi Tanabe have agreed to deals with Cynapsus Therapeutics for $624m and NeuroDermfor $1.1bn, respectively, to expand their portfolios’ coverage of Parkinson’s disease (Mitsubishi Tanabe, 2017a; SumitomoDainippon, 2016).

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Barriers to emerging market access – There are many important challenges for Japan Pharma to overcome to fully capitalizeon the commercial potential in emerging markets. These range from a lack of infrastructure to major differences in healthcarestandards, reimbursement and regulatory systems and processes, and dependencies on local partners.

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Burgeoning healthcare markets available – As growth slows in Japan, Japan Pharma is increasingly targeting emergingmarkets, including China, which is now the world’s second largest healthcare market, as well as key “Tiger” nations such as SouthKorea. Recent proposals by the Chinese Food and Drug Administration to accept ex-China clinical trial data as evidence in drugregistrations will likely benefit Japan Pharma by enabling and speeding up regulatory approvals (Reuters, 2017a).

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Takeda’s success – Takeda’s 2011 acquisition of Nycomed for €9.6bn (approximately $13.4bn at the time) enabled the companyto expand its global footprint from 27 countries to over 70, while its 2015 acquisition of Neutec for $121m expanded itspresence to Turkey, Italy, Greece, and the Middle East (Takeda, 2011; 2015). Between 2010 and 2017*, Takeda’s RoW sales grewby 78.8% to approximately $3.4bn.

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Daiichi Sankyo’s failed risk calculation – The accentuated risk-return spectrum of deal-making in emerging markets isexemplified by Daiichi Sankyo’s $4.6bn payment in 2008 for a controlling interest in Ranbaxy. In 2015, Daiichi Sankyo sold itsshares in the company for only $3.2bn due to sanctions imposed by the FDA regarding manufacturing processes at Ranbaxy’sIndia plants (Daiichi Sankyo, 2008; 2015b).

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PharmaVitae has observed a significant shift in deal-making activity by Japan Pharma focused on regenerative medicine (see•




figure below), involving agreements both within industry and with academia.

Multiple Japan Pharma companies have established strong operations focused on regenerative medicine, with Daiichi Sankyo,Sumitomo Dainippon, and Takeda having progressed candidates into clinical trials.

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Figure 15: Japan Pharma’s alliance deals involving regenerative medicine, 2008–17





REVENUE ANALYSIS

GLOBAL PRESCRIPTION PHARMACEUTICAL REVENUE OVERVIEW Japan Pharma will add $6.5bn in annual prescription pharmaceutical product global revenue by 2027*, reaching $69.5bn inannual sales at a low CAGR of 1.0%.

COMPANY PERFORMANCE RANKING PharmaVitae forecasts that Takeda will maintain its long-standing position as the peer set leader by pharmaceutical sales.

Slow peer set growth – Japan Pharma is forecast to grow at a 1.7% CAGR out to 2022*, before slowing to 0.3% during2022–27*. The industry is facing a difficult environment for mature products, and a patent cliff in 2018/2019*. However, ahealthy portfolio of pipeline and acquired assets will ensure positive mid- and long-term outlooks.

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Figure 16: Japan Pharma’s prescription pharmaceutical performance, by sales ($m) and growth rate (%), 2014–27*


Takeda has led the peer set since 2004*, and will extend its lead over second-placed Astellas during the forecast period.Organic and inorganic tailwinds will drive revenue growth, countering patent expiries for key products in Takeda’sgastroenterology and oncology portfolios.

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Market share

Otsuka will add the most revenue in the peer set owing to a strong launch portfolio in its CNS program that will countercontinued generic erosion of its former blockbuster Abilify.

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Kyowa Hakko Kirin is set to fall one position to number 10 in the peer set by 2027*, declining at a -1.2% CAGR. The companywill be weighed down by its heavy exposure to Japanese generics.

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Ono will climb within the peer set, buoyed by the global success of its oncology asset Opdivo.•

Figure 17: Japan Pharma rankings, 2014–27*

Source: Datamonitor Healthcare, PharmaVitae Analytics



Table 3: Japan Pharma sales, by company ($bn), 2017–27*

Rank Company

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

2017–27CAGR

1 Takeda 15,594 16,007 16,033 16,081 16,343 16,824 17,236 17,570 17,556 17,617 17,286 1,692 1.0%

2 Astellas 11,987 12,029 11,287 11,170 11,379 11,551 11,465 11,359 11,349 11,310 11,298 -689 -0.6%

3 Otsuka 7,143 7,452 7,935 8,337 8,764 9,262 9,824 10,112 9,826 9,769 9,703 2,560 3.1%

4 DaiichiSankyo

7,749 7,338 7,060 7,040 7,131 7,255 7,315 7,327 7,348 7,301 6,706 -1,043 -1.4%

5 Eisai 4,418 4,490 4,673 4,837 4,931 5,162 5,349 5,682 6,110 6,474 6,698 2,280 4.2%

6 SumitomoDainippon

4,303 4,433 4,768 5,114 5,189 5,368 5,549 4,730 4,551 4,387 4,225 -78 -0.2%

7 Shionogi 2,930 2,895 3,133 3,343 3,517 3,652 3,699 3,730 3,778 3,813 3,834 904 2.7%

8 Ono 2,414 2,433 2,705 2,932 3,147 3,361 3,530 3,665 3,773 3,835 3,833 1,419 4.7%



Table 3: Japan Pharma sales, by company ($bn), 2017–27*

9 Mitsubishi Tanabe

3,877 3,963 3,863 3,871 3,774 3,788 3,844 3,875 3,784 3,706 3,640 -237 0.6%

10 KyowaHakkoKirin

2,543 2,447 2,294 2,213 2,195 2,223 2,275 2,261 2,252 2,253 2,253 -290 1.2%

Grand total 62,958 63,487 63,751 64,938 66,370 68,446 70,086 70,311 70,327 70,465 69,476 6,518 1.0%

Note: totals may not sum due to rounding.




Table 4: Japan Pharma peer set market share analysis, 2017–27

Market share Market share gains Market share losses

Company 2017 Company 2022 Company 2027 Company 2017–27 (%) Company 2017–27 (%)

Takeda 24.80% Takeda 24.60% Takeda 24.90% Eisai 2.60% Astellas -2.70%

Astellas 19.00% Astellas 16.90% Astellas 16.30% Otsuka 2.60% Daiichi Sankyo -2.70%

Daiichi Sankyo 12.30% Otsuka 13.50% Otsuka 14.00% Ono 1.70%MitsubishiTanabe

-0.90%

Otsuka 11.30% Daiichi Sankyo 10.60% Daiichi Sankyo 9.70% Shionogi 0.90%Kyowa HakkoKirin

-0.80%

Eisai 7.00%SumitomoDainippon

7.80% Eisai 9.60% Takeda 0.10%SumitomoDainippon

-0.80%





Japan Pharma companies focused on oncology and CNS will gain market share within the peer set as they capitalize on unmet needsin these lucrative fields.

WHAT IS JAPAN PHARMA’S REGIONAL TRAJECTORY?

Takeda’s market share dominance will be maintained over the forecast period, driven by its strong portfolio of oncologyproducts as rival companies lose ground. The company will account for one quarter of Japan Pharma’s total revenue throughoutthe forecast period.

•

Second-placed Astellas will maintain its position in the peer set, but will continue to feel pressure from past patent expiries forkey products Prograf/Astagraf XL (tacrolimus) and Vesicare (solifenacin succinate), losing 2.7% of its market share over2017–27*.

•

Third-placed Daiichi Sankyo will be severely impacted by the loss of market exclusivity for its olmesartan anti-hypertensivefranchise, and will lose its position to Otsuka by 2022*.

•

Otsuka will perform strongly, benefiting from its portfolio of psychiatric products and acquisition of Avanir in 2015, and will gain2.6% of market share over the forecast period.

•

Eisai and Ono will also make market share inroads, with Eisai gaining 2.6% of market share fueled by its strong oncology andCNS products, and Ono realizing market growth through Opdivo’s success.

•

Figure 18: Japan Pharma regional trajectory, 2017–27*





PharmaVitae forecasts Japan Pharma to grow globally despite domestic headwinds in Japan.

Mid-term (2017–22*)

COMPANY GROWTH DYNAMICS

PharmaVitae forecasts contrasting mid-term outlooks for the peer set as Japan Pharma continues to face pressures from patentexpiries, but adds $5.5bn to its topline revenue out to 2022*.

Japanese market prominence to decline – Japan Pharma’s domestic sales are set to continue to decline in the face ofcommercial headwinds and escalating generic competition. PharmaVitae expects the peer set’s Japanese sales to fall by 2.4%out to 2027*. Mid-term revenue growth in the US will offset these losses as Japan Pharma looks to expand its presence in theregion. The difference in share of total sales between Japanese revenue and US revenue is expected to narrow from 16.7% in2016* to 10.1% by 2027*.

•

Global growth – Japan Pharma companies continue to inorganically and organically build their infrastructure in the US,encouraged by lucrative prices for innovative products in the region. Meanwhile, Japan Pharma’s sales in the five major EUmarkets will experience modest growth, but will still only contribute approximately 12% to the peer set’s topline revenue. TheRoW region will also show growth throughout the forecast period, driven by emerging markets in Asia.

•

Figure 19: Japan Pharma mid-term growth and decline, by company, 2017–22*


Otsuka will easily lead growth in the peer set, with its strong launch portfolio of psychiatry drugs set to drive mid-term growth.•

Takeda will grow by over $1bn as the uptake of Entyvio (vedolizumab) and launch of Ninlaro (ixazomib) successfully offset thedecline in Velcade sales due to generic competition.

•

Sumitomo Dainippon will also add over $1bn in sales as Latuda continues to make inroads in the US psychiatric market.•

Daiichi Sankyo, Astellas, and Kyowa Hakko Kirin will all come under pressure out to 2022* owing to generic erosion of the•




Long-term, 2022–27*

COMPANY GROWTH DYNAMICS

PharmaVitae expects Japan Pharma’s growth to slow considerably over 2022–27*, adding only $1.0bn to its topline revenue.

REGIONAL OVERVIEW

olmesartan franchise, Vesicare, and NESP (darbepoetin alfa), respectively.

Figure 20: Japan Pharma long-term growth and decline, by company, 2022–27*


PharmaVitae expects aducanumab to fuel Eisai’s long-term growth, adding over $1.8bn to the company’s topline revenue. Theantibody is a high-risk pipeline asset, but if successful, Eisai is set to capitalize on a serious unmet need with the first disease-modifying therapy available for Alzheimer’s disease.

•

Otsuka’s growth will largely be driven by AVP-786’s launch for the treatment of agitation associated with Alzheimer’s disease, anunderserved indication that could generate $1.2bn for the company.

•

Sumitomo Dainippon will experience intense pressure as Latuda sales face severe generic erosion beginning in 2024*.Nevertheless, the company has had much success with Latuda, having enjoyed an extended six years of market exclusivity forthe blockbuster.

•

Mitsubishi Tanabe sales will be relatively flat as its cardiovascular business rebounds with the launch of vadadustat offsettingthe declining sales of Remicade (infliximab) and Simponi (golimumab) in Japan.

•




US



Table 5: Japan Pharma sales in the US, by company ($bn), 2017–27*

Rank Company 2017 2022 2027 Δ2017–27 2017–27 CAGR

1 Takeda 5.5 5.1 5.6 0.0 0.1%

2 Astellas 3.7 3.7 3.1 -0.7 -1.9%

3 Sumitomo Dainippon 2.1 3.3 2.2 0.1 0.4%

4 Otsuka 2.0 3.6 3.8 1.8 6.6%

5 Daiichi Sankyo 1.7 1.7 1.9 0.2 1.1%

6 Eisai 1.1 1.4 1.2 0.2 1.4%

7 Shionogi 1.0 1.7 1.8 0.8 6.2%

8 Ono 0.4 0.4 0.4 0.0 0.8%

9 Kyowa Hakko Kirin 0.1 0.4 0.5 0.3 12.7%

10 Mitsubishi Tanabe 0.1 0.4 0.2 0.1 3.7%

Grand total 17.7 21.7 20.6 2.8 1.5%



Table 5: Japan Pharma sales in the US, by company ($bn), 2017–27*






US sales will grow at a CAGR of 1.5% as Japan Pharma expands its operations in the region. The US is the second largest market forJapan Pharma, and PharmaVitae expects it to remain a strategic priority over the forecast period. Japanese companies areincreasingly preferring to grow their US infrastructure and commercialize their products independently rather than out-license rightsto US companies in search of higher profit margins. Japan Pharma will remain encouraged by the high prices that innovative productscan command in the US market. Takeda will maintain its leadership of the US market, while Otsuka’s US sales will grow the most (by $1.8bn) out to 2027*. Takeda’sUS revenue will remain flat over the forecast period, while Otsuka will benefit from its strong CNS launch portfolio. Previously,Mitsubishi Tanabe was the only company not to have US operations, but the launch of Radicut in 2017 for amyotrophic lateralsclerosis pioneered its US operations and will be a platform for future launches. Five major EU markets



Table 6: Japan Pharma sales in the five major EU markets, by company ($bn), 2017–27*


1 Astellas 2.5 2.4 2.5 0.0 0.0%

2 Takeda 2.0 3.0 3.3 1.3 5.0%

3 Daiichi Sankyo 0.6 0.8 0.6 -0.0 -0.1%

4 Otsuka 0.3 0.6 0.9 0.5 10.2%

5 Eisai 0.3 0.4 0.3 0.0 1.4%

6 Kyowa Hakko Kirin 0.3 0.4 0.5 0.2 5.3%

7 Shionogi 0.2 0.3 0.3 0.1 2.2%

8 Mitsubishi Tanabe - 0.1 0.1 0.1 n/a

9 Ono - - - - n/a

10 Sumitomo Dainippon - - - - n/a

Grand total 6.3 8.0 8.5 2.2 3.1%



Table 6: Japan Pharma sales in the five major EU markets, by company ($bn), 2017–27*






PharmaVitae forecasts Astellas to lose its leadership in the five major EU markets to Takeda by 2027*. Astellas’s portfolio in the fivemajor EU markets was established through Xtandi, Prograf, and Vesicare, but is expected to remain flat as it faces generic pressures.Otsuka will close its revenue gap with Astellas, driven by the 9.0% CAGR of its CNS products. The five major EU markets constitute thesmallest of Japan Pharma’s regions, with many products out-licensed to European partners, and with Ono, Mitsubishi Tanabe, andSumitomo Dainippon not currently reporting European sales. Japan Pharma’s sales in the five major EU markets will be temperedthroughout the forecast period by strict cost-effectiveness measures levied by payers who have imposed CEAs for drug pricing andstringent criteria for reimbursement for first-line use. Japan



Table 7: Japan Pharma sales in Japan, by company ($bn), 2017–27*


1 Takeda 4.6 4.9 4.4 -0.2 -0.5%

2 Daiichi Sankyo 4.5 3.9 3.4 -1.2 -2.9%

3 Astellas 3.9 3.6 3.9 0.0 0.1%

4 Otsuka 3.7 3.5 3.3 -0.4 -1.3%

5 Mitsubishi Tanabe 2.8 2.5 2.5 -0.3 -1.0%

6 Eisai 2.3 2.3 3.5 1.3 4.5%

7 Ono 2.0 2.9 3.4 1.4 5.4%

8 Kyowa Hakko Kirin 1.8 1.2 1.0 -0.8 -5.5%

9 Sumitomo Dainippon 1.3 1.0 0.8 -0.5 -4.5%

10 Shionogi 1.3 1.3 1.3 0.0 0.3%

Grand total 28.3 27.1 27.6 -0.7 -0.2%



Table 7: Japan Pharma sales in Japan, by company ($bn), 2017–27*






Takeda leads the Japan Pharma peer set’s domestic sales, and will maintain its dominant position despite its Japanese revenue beingset to decline at a CAGR of -0.5% over the forecast period. Second-placed Daiichi Sankyo’s domestic sales will be hit by genericerosion of the olmesartan franchise, while Astellas will experience flat growth in Japan as losses of market exclusivity for its keybrands Vesicare and Prograf are offset by continued uptake of Xtandi in prostate cancer. PharmaVitae expects Kyowa Hakko Kirin tofall the hardest in Japanese sales among the peer set, declining at a -5.5% CAGR out to 2027*, as its portfolio of longer-listed productscontinues to succumb to generic pressure. RoW



Table 8: Japan Pharma sales in RoW, by company ($bn), 2017–27*


1 Takeda 3.4 3.8 4.1 0.6 1.7%

2 Astellas 1.9 1.8 1.8 -0.1 -0.3%

3 Otsuka 1.1 1.6 1.8 0.7 4.8%

4 Mitsubishi Tanabe 1.0 0.8 0.8 -0.2 -1.8%

5 Daiichi Sankyo 0.9 0.8 0.8 -0.1 -0.9%

6 Sumitomo Dainippon 0.8 1.1 1.2 0.3 3.4%

7 Eisai 0.8 1.1 1.6 0.8 7.2%

8 Shionogi 0.4 0.4 0.4 -0.0 -0.2%

9 Kyowa Hakko Kirin 0.3 0.3 0.3 -0.0 -0.3%

10 Ono - - - - n/a

Grand total 10.7 11.7 12.8 2.1 1.8%



Table 8: Japan Pharma sales in RoW, by company ($bn), 2017–27*






Demand in emerging markets is growing rapidly, providing an important platform for both longer-listed and newer brands. JapanPharma is trying to tap into these markets with increasing intensity as price cuts and other factors hinder domestic growth.

TOP 20 PRODUCTS

China and South Korea dominate Japan Pharma’s RoW focus, although its presence in the Middle East remains significant.•

PharmaVitae expects emerging markets to be a strong source of revenue growth, with the RoW region accounting for 18.4% ofJapan Pharma’s total sales by 2027*, compared to 17% in 2016*.

•

Takeda leads sales in the RoW region, having benefited from deal-making to expand its global reach.•

Daiichi Sankyo, Mitsubishi Tanabe, and Eisai have also grown their presence in emerging markets through M&A.•

Astellas’s Xtandi will be the top product in the peer set out to 2027*. Xtandi’s sales will be supplemented by three otherAstellas products in the top 20, namely roxadustat, Prograf/Astagraf XL, and Myrbetriq (mirabegron).

•

Takeda and Otsuka will also feature strongly, with six and four products, respectively.•

Daiichi Sankyo’s Savaysa/Lixiana (edoxaban), Eisai’s Lenvima (lenvatinib), Sumitomo Dainippon’s Latuda, and Shionogi’s HIVroyalties (dolutegravir) will also be blockbusters during the forecast period.

•



Table 9: Japan Pharma’s top 20 products ($bn), 2017–27*

Rank Brand name Generic name Primary disease Company 2017 2022 2027 Δ2017–27 2017–27 CAGR

1 Xtandi enzalutamide Prostate cancer Astellas 2.7 3.9 4.5 1.8 5.1%

2 Entyvio vedolizumab Ulcerative colitis Takeda 1.9 3.2 3.7 1.9 7.2%

3 Ninlaro ixazomib Multiple myeloma Takeda 0.4 1.8 2.3 1.9 18.6%

4 Opdivo nivolumab Malignant melanoma Ono 0.8 1.7 2.1 1.3 9.8%

5 aducanumab aducanumab Alzheimer's disease Eisai - 0.2 1.9 1.9 n/a

6 Rexulti brexpiprazole Anemia Otsuka 0.4 1.3 1.6 1.2 14.0%

7 HIV royalties SHIO dolutegravir HIV infection Shionogi 1.0 1.6 1.6 0.7 5.3%

8 Lenvima lenvatinib Thyroid cancer Eisai 0.3 1.1 1.3 1.0 16.1%

9 AVP-786 deuterium-modifieddextromethorphan

Alzheimer's disease Otsuka - 0.4 1.2 1.2 n/a

10 roxadustat roxadustat Anemia Astellas - 0.6 1.2 1.2 n/a

11 Savaysa/Lixiana edoxaban Atrial fibrillation DaiichiSankyo

0.7 1.4 1.1 0.4 4.2%



Table 9: Japan Pharma’s top 20 products ($bn), 2017–27*

12 Lupron leuprolide Prostate cancer Takeda 1.1 0.9 0.9 0.2 -1.8%

13 Takecab vonoprazan fumarate Gastroesophageal refluxdisease

Takeda 0.5 0.7 0.8 0.3 4.4%

14 Prograf/Astagraf XL tacrolimus Transplant rejection Astellas 1.8 0.8 0.8 1.1 -8.4%

15 Adcetris brentuximab vedotin Hodgkin's lymphoma Takeda 0.4 0.6 0.8 0.4 7.9%

16 vadadustat vadadustat Anemia Otsuka - 0.2 0.7 0.7 n/a

17 Trintellix vortioxetine Hodgkin's lymphoma Takeda 0.4 0.9 0.7 0.3 4.7%

18 Latuda lurasidone hydrochloride Schizophrenia SumitomoDainippon

1.6 2.2 0.7 1.0 -8.3%

19 Myrbetriq mirabegron Overactive bladder Astellas 1.2 1.6 0.7 0.5 -5.5%

20 Lonsurf tipiracil hydrochloride, trifluridine Colorectal cancer Otsuka 0.3 0.5 0.6 0.3 7.9%






Xtandi The androgen receptor signaling inhibitor Xtandi is Astellas’s first multi-billion-dollar oncology drug, and will maintain its position asthe top product in the peer set throughout the forecast period.

Entyvio Takeda has carved a position for Entyvio in the competitive inflammatory bowel disease (IBD) space, promoting the drug’s uptake as asafer alternative to biologics in later lines of therapy for both Crohn’s disease and ulcerative colitis.

Ninlaro Takeda’s Ninlaro will carve out a position as the first and only approved oral proteasome inhibitor for multiple myeloma (MM).Ninlaro’s convenient once-weekly oral formulation provides a competitive advantage against the injected treatments Velcade andKyprolis (carfilzomib; Amgen/Ono Pharmaceutical).

Label expansion – PharmaVitae expects Xtandi to become the most prescribed drug for metastatic castration-resistantprostate cancer (mCRPC), benefiting from supplementary approvals in late 2014 for use in chemotherapy-naïve mCRPC patientsand in October 2016 for use after metastasis or before Casodex (bicalutamide; AstraZeneca).

•

PROSPER trial breakthrough – Positive PROSPER trial results for Xtandi (ClinicalTrials.gov identifier: NCT02003924) will expandthe drug’s coverage to all CRPC patients, and drive growth out to 2027* (Astellas, 2017b).

•

Strong risk/benefit profile – An improved side-effect profile has supported Entyvio’s use in patients reluctant to initiatebiologic therapy due to safety concerns, and the drug has experienced large uptake in the biologic-naïve elderly population. Thelack of a black box warning has facilitated uptake, differentiating it from anti-tumor necrosis factors (TNFs), which carry black boxwarnings due to an increased risk of developing cancers and serious infections such as tuberculosis.

•

Global expansion – Entyvio has also enjoyed a successful global expansion, earning marketing approval in over 50 countries todate. The drug is forecast to earn approval in Japan in Q3 2018*, where PharmaVitae expects it to gain significant traction due toTakeda’s domestic infrastructure and Japan’s significant elderly IBD population.

•

Real-world evidence boost – Takeda is conducting multiple real-world clinical studies, as well as a head-to-head study againstHumira (adalimumab; AbbVie/Eisai) (ClinicalTrials.gov identifier: NCT02497469), in a bid to position Entyvio ahead of biologics inthe treatment algorithm and to defend the drug against intensifying pricing pressures anticipated with the launch ofadalimumab and infliximab biosimilars.

•

Safety and convenience will drive uptake in earlier lines – Takeda is running a series of additional studies (TOURMALINE-MM series) to expand Ninlaro’s label and capture considerable market share in the first-line, maintenance, and second-line MMtreatment settings. As a cheaper oral alternative, Ninlaro will fill a void for patients with relapsed or refractory MM who needaccess to more tolerable and convenient treatments, especially in elderly populations.

•

Benefit from Velcade’s market position – Takeda will be able to utilize its dosing advantages and pre-existing market position– established by its longer-listed product, Velcade – to switch patients over to the newer oral therapy.

•




AVP-786 Otsuka’s Phase III candidate AVP-786 is the company’s next-generation version of Nuedexta, and is forecast to reach sales ofapproximately $1.2bn by 2027*. Otsuka obtained AVP-786 through its acquisition of Avanir Pharmaceuticals in 2015, and the drug isbeing tested in Alzheimer’s disease, schizophrenia, and major depressive disorder (MDD). However, PharmaVitae believes that AVP-786 has the most commercial potential in Alzheimer’s disease.

Agitation associated with Alzheimer’s disease – Otsuka is testing AVP-786 in patients who suffer from agitation associatedwith Alzheimer’s disease. It is estimated that of the 4 million Americans with Alzheimer’s disease, up to 50% exhibit agitationsymptoms including aggression, combativeness, shouting, hyperactivity, and disinhibition (GMHF, 2016). There are currently noFDA-approved drugs addressing this patient segment, and access would be a lucrative growth driver for Otsuka.

•




THERAPY AREA ANALYSIS

GLOBAL OVERVIEW Oncology and CNS assets will fuel Japan Pharma’s growth. Figure 21: Japan Pharma therapy area sales split, 2012–27*


Oncology will maintain the largest proportion of Japan Pharma’s prescription sales out to 2027*. In 2017*, the oncology marketaccounted for $11.7bn (18.6%) of Japan Pharma’s revenue, and will grow to $17.1bn (24.6%) by 2027*. Japan Pharmacompanies will add over $500m on average in oncology sales out to 2027*, as oncology products drive 45.8% of total toplinegrowth during the forecast period.

•

CNS has long been a core therapy area for Japan Pharma, and will continue to remain a focus over the forecast period, growingby $3.6bn. In the mid-term, the CNS therapy area will grow slightly quicker than oncology, but out to 2027* key patent expiries inCNS will mean that oncology will extend its leadership.

•




Both oncology and CNS will be buoyed by recent investments in the US, as well as innovation in the Alzheimer’s disease andimmuno-oncology fields. Japan Pharma companies have increasingly utilized deal-making to their bolster US operations,attracted by unmet needs in these lucrative disease areas. Such deals include Takeda’s $5.2bn takeover of Ariad in 2016, andOtsuka’s $3.5bn buyout of Avanir in 2015. Subsequently, by 2027*, the US will account for 37.1% and 39.4% of Japan Pharma’sCNS and oncology sales, respectively.

•

The cardiovascular therapy area will lose market share (-$1.9bn), and will be superseded by the immunology and inflammationtherapy area during the forecast period. This decline will be primarily due to generic erosion of older hypertensive productswithin the portfolios of Astellas and Daiichi Sankyo.

•

The gastroenterology therapy area will also lose ground as Japan Pharma’s former blockbuster proton-pump inhibitor therapiescontinue to lose market share to generics.

•

The metabolic market will experience steady growth of 1.2% out to 2027*, as new launches lift sales and offset the decline ofShionogi’s Crestor (rosuvastatin).

•



Table 10: Japan Pharma primary therapy area sales ($bn), 2017–27*; sorted by 2022* sales

Therapy area 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

Oncology 11.7 11.7 12.2 13.0 13.9 15.0 15.9 16.3 16.7 16.9 17.1 5.4

Central nervoussystem

10.5 11.5 12.0 12.5 13.1 14.0 14.8 14.6 14.4 14.5 14.1 3.6

Immunology &inflammation

7.4 7.9 7.5 7.5 7.4 7.4 7.5 7.7 7.8 7.9 8.0 0.7

Cardiovascular 8.2 7.2 7.1 7.1 7.2 7.1 7.1 7.1 7.0 6.9 6.3 -1.9

Metabolic 4.7 4.8 5.1 5.5 5.8 6.2 6.5 6.7 6.7 6.6 6.4 1.8

Infectious diseases 5.2 5.3 5.4 5.4 5.5 5.5 5.5 5.5 5.5 5.5 5.5 0.4

Gastroenterology 5.1 4.9 4.8 4.4 4.1 3.9 3.8 3.7 3.7 3.7 3.6 -1.4

Genitourinary 3.2 3.3 3.1 3.0 3.0 3.1 2.8 2.5 2.4 2.3 2.2 -1.0

Hematology 2.4 2.4 2.4 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 -0.1

Respiratory 1.7 1.7 1.6 1.7 1.6 1.6 1.6 1.7 1.7 1.8 1.8 0.0

Other 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 -0.0



Table 10: Japan Pharma primary therapy area sales ($bn), 2017–27*; sorted by 2022* sales

Musculoskeletal 1.5 1.5 1.2 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.8 -0.7

Ophthalmology 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -0.0

Grand total 63.0 63.5 63.8 64.9 66.4 68.4 70.1 70.3 70.3 70.5 69.5 6.5






To demonstrate therapeutic area intensity, PharmaVitae has analyzed the difference between companies’ top twotherapeutic areas.

In 2017*, Sumitomo Dainippon had the highest value with the bulk of its revenue in its CNS portfolio. However, itsdependence on CNS will reduce out to 2027*, as generics erode its CNS sales and as it grows its respiratory portfolio.

•

Ono is highly focused on oncology, and this is expected to intensify out to 2027*, with 71% of the company’s revenue expectedto derive from oncology indications.

•

Eisai and Otsuka’s therapy area intensity is expected to increase over the forecast period owing to the success of their CNSportfolios, which will each account for 47% of their 2027* total revenue.

•

Shionogi will increase its therapeutic focus with 57% of its revenue originating from infectious diseases.•

In 2017*, Eisai, Kyowa Hakko Kirin, and Takeda’s portfolios appear diversified, but only Takeda is expected to maintain thisstrategy with its “Δ%Top-2” percentage dropping to 1.3% by 2027*.

•

The decline in Daiichi Sankyo’s “Δ%Top-2” percentage from 26.8% to 15.2% reflects its lack of pipeline drugs in cardiovascularindications.

•

Owing to headwinds in the genitourinary and cardiovascular markets, Astellas’s “Δ%Top-2” percentage value will increase from5.1% to 26.1% as the company hinges its growth on the prostate cancer drug Xtandi, which is set to become the peer set’shighest grossing product by 2027*.

•

Figure 22: Japan Pharma sales, by company and primary therapy area (%), 2017–27*, figure one of two





ONCOLOGY: ANALYSIS AND TRENDS Japan Pharma’s oncology market will grow by 46.1% to reach $17.1bn over the forecast period at a CAGR of 3.9%. The industry’sdependence on oncology will grow from 18.6% in 2017* to 24.6% in 2027*, extending its lead over CNS.

Company performances

Figure 23: Japan Pharma sales, by company and primary therapy area (%), 2017–27*, figure two of two


Patent expiries for key brands, including the blockbuster Velcade in 2017, will weigh down the peer set’s oncology performanceout to 2019*. However, a strong and innovative portfolio of pipeline drugs will ensure strong growth thereafter out to 2027*.

•

The largest growth is set to occur in the US market, where oncology has been a key strategic focus of the Japan Pharma peer set,which will benefit from intensive deal-making activity in the region. Japan Pharma’s US oncology sales are set to grow at a 3.3%CAGR over the forecast period.

•

Takeda will preserve its lead in the oncology market, growing by 39.4% over the forecast period, although the company’s overalloncology share will decrease from 31.3% to 30.0% between 2017 and 2027*.

•

Second-placed Astellas will also maintain its position, as the company’s oncology product revenue grows by $1.7bn out to2027* driven by continued uptake of the leading prostate cancer therapy Xtandi.

•

Ono will enjoy an 8.2% CAGR fueled by the success of its shared immunotherapy asset Opdivo, with the company’s oncologyrevenue set to more than double over the forecast period.

•

Eisai’s oncology portfolio will experience a healthy 3.0% CAGR over the forecast period as Lenvima offsets generic erosion oflonger-listed oncology products.

•




Daiichi Sankyo and Sumitomo Dainippon will largely fail to benefit from investments and diversification into the oncologytherapy area as the companies’ oncology pipelines continue to struggle.

•

Mitsubishi Tanabe is the only company in the peer set that will not have an oncology portfolio by 2027*.•



Table 11: Japan Pharma’s oncology sales, by company ($bn), 2017–27*

Rank Company

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

2017–27CAGR

1 Takeda 3.68 3.43 3.33 3.56 3.90 4.30 4.67 4.91 5.05 5.11 5.13 1.45 3.4%

2 Astellas 3.18 3.42 3.62 3.86 4.08 4.30 4.48 4.61 4.71 4.79 4.85 1.67 4.3%

3 Ono 1.24 1.28 1.57 1.79 2.00 2.18 2.34 2.48 2.58 2.66 2.72 1.48 8.2%

4 Otsuka 1.74 1.65 1.64 1.71 1.74 1.78 1.85 1.83 1.83 1.82 1.80 0.07 0.4%

5 Eisai 1.17 1.21 1.38 1.48 1.57 1.67 1.67 1.59 1.57 1.56 1.57 0.40 3.0%

6 KyowaHakkoKirin

0.63 0.63 0.53 0.49 0.48 0.49 0.50 0.48 0.47 0.47 0.46 -0.16 -3.0%

7 DaiichiSankyo

0.01 0.02 0.03 0.07 0.12 0.19 0.25 0.30 0.33 0.35 0.35 0.34 42.7%

8 SumitomoDainippon

0.00 0.00 0.00 0.01 0.02 0.03 0.06 0.09 0.12 0.13 0.13 0.13 n/a



Table 11: Japan Pharma’s oncology sales, by company ($bn), 2017–27*

9 Shionogi 0.04 0.04 0.04 0.04 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.00 0.9%

Grand total 11.68 11.68 12.15 13.01 13.94 14.97 15.86 16.34 16.70 16.92 17.07 5.38 3.9%






Astellas’s Xtandi will lead oncology product sales

Oncology portfolios face generic headwinds against key brands The top five growth resistors in Japan Pharma’s oncology portfolio are forecast to lose combined sales of $2.2bn out to 2027*. JapanPharma’s oncology portfolio shows limited exposure to generics, owing primarily to its relatively new position in the oncology space,while gains from launch products will easily outstrip losses from expiry products.

Takeda will add growth and maintain its oncology market leadership Takeda has positioned itself as the Japanese leader in oncology, and it will continue to dominate this therapy area over theforecast period. In 2016, Takeda had both Lupron in prostate cancer and Velcade in multiple myeloma reporting blockbuster sales. However, these

Astellas’s Xtandi will be the top oncology product, with PharmaVitae forecasting sales of $4.5bn by 2027* as the androgenreceptor inhibitor entrenches itself as an established therapy in castration-resistant prostate cancer.

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Takeda’s Ninlaro will be the largest growth driver in the oncology therapy area as sales increase by $1.9bn during the forecastperiod. Ninlaro will carve out a position as the first and only oral proteasome inhibitor therapy approved for multiple myeloma.Ninlaro’s uptake will benefit from Takeda’s existing market position with the multiple myeloma predecessor Velcade as patientsswitch to Ninlaro owing to its more convenient and cheaper oral formulation. Velcade itself will become the oncology portfolio’slargest resistor, falling by $1.1bn over the forecast period.

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Ono and Bristol-Myers Squibb’s Opdivo will reach $2.1bn in Japanese revenue by 2027* as the drug establishes itself as astandard in immunotherapy cancer treatment.

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Eisai’s Lenvima will also achieve blockbuster status, reaching $1.3bn by 2027*. Lenvima’s success will be driven by its labelexpansions into hepatocellular carcinoma and renal cell carcinoma where it promises to become the new standard-of-caretherapy alongside immunotherapy.

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Takeda will be impacted by Velcade generics – Takeda’s Velcade will fall by $1.1bn over the forecast period, although theproduct will experience slower generic erosion than previously expected. In July 2017, Takeda successfully appealed an earlierruling by the US district court that had invalidated the company’s formulation patent (‘466 patent), which was covering Velcadeuntil 2022 (Reuters, 2017b). Some generics did launch in the US from November 2017, having been filed using differentformulations not covered by the ‘466 patent, but these had minimal impact. PharmaVitae expects generic erosion to quicklyintensify as generics for both Velcade’s intravenous and subcutaneous formulations are expected to launch in the US inSeptember 2018.

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Eisai’s Aloxi to face generics – Eisai’s leading oncology brand Aloxi will fall by $414m over the forecast period due to genericcompetition. Although not technically an anticancer drug, Aloxi enabled Eisai to establish a presence in the lucrative US oncologymarket and provided a platform for growth of the company’s other products such as Halaven (eribulin). PharmaVitae expectsHalaven to continue to see uptake in breast cancer before it to succumbs to generic competition in Japan in Q3 2020* and inthe US in Q3 2023*.

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products will face significant branded and generic competition, causing sales to contract out to 2027*. Takeda has taken several stepsto not only mitigate the impact of generic competition, but also set up its oncology portfolio for future growth. To combatgenericization, Takeda has developed Ninlaro as a successor to Velcade’s market share in multiple myeloma, while the company’s$5.2bn acquisition of Ariad in 2017 is set to bolster its US oncology business and offer synergies (Takeda, 2017b). Takeda’s success in oncology can largely be attributed to shrewd deal-making that secured oncology as the company’slargest therapy area and will drive long-term growth.

Takeda has a comfortable lead over rival ADC technologies Takeda is well positioned as a leader in antibody-drug conjugate (ADC) technology. Takeda’s lead ADC agent, Adcetris (brentuximab vedotin), is a CD30-targeted cytotoxic agent developed in collaboration with SeattleGenetics, and was the second ADC product when originally approved in August 2011 for CD30-positive relapsed or refractoryHodgkin’s lymphoma and anaplastic large-cell lymphoma. Adcetris is one of five ADC products on the global market, and has rapidlyestablished itself as a standard-of-care third-line therapy for Hodgkin’s lymphoma, earning $277m for Takeda in 2016. Adcetris willcontinue to grow to over $600m by 2027, driven by label expansions in front-line Hodgkin’s lymphoma and cutaneous T-celllymphoma. Other Japan Pharma companies operating in the ADC space include Astellas and Daiichi Sankyo. Although their flagship ADCprograms remain in mid-phase development, both companies have also been busy making deals to increase their ADC capacity andresearch platforms as they seek to ride the second wave of ADC therapies.

Ono leads Japan Pharma’s presence in immunotherapies Ono stands to benefit significantly from its investment in immunotherapy through its collaboration with Bristol-Myers Squibb forOpdivo, Yervoy (ipilimumab), and other additional early-stage assets.

Millennium acquisition – In 2008, Takeda acquired Millennium in a deal worth $8.8bn, obtaining the US rights to Velcade aswell as the global rights to Ninlaro. The deal significantly increased Takeda’s marketing capabilities in the US, and the productsacquired have formed the backbone of the company’s oncology portfolio.

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Ariad acquisition – The $5.2bn acquisition of Ariad in 2017 will bolster Takeda’s US oncology business. PharmaVitae forecaststhat Ariad’s products will add over $700m to Takeda’s topline revenue, while also adding a rich pipeline of early- and mid-phaseassets to help galvanize growth beyond the forecast period.

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Astellas’s ADC assets are led by AGS-16C3F, an ENPP3-targeting ADC for renal cell carcinoma, and enfortumab vedotin, anectin-4-targeting ADC co-developed with Seattle Genetics for metastatic urothelial cancer patients who have been previouslytreated with a checkpoint inhibitor therapy.

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Daiichi Sankyo recently progressed DS-8201 into pivotal Phase II trials for HER2-positive breast cancer and HER2-positivelocally advanced or metastatic gastric cancer.

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Ono discovered Opdivo internally, reports Japanese sales of the drug, and receives royalties from Bristol-Myers Squibb’s globalsales. Opdivo is set to reach sales of $11.8bn worldwide by 2027*, of which Ono will directly report $2.1bn from sales in Japan.

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Japan Pharma’s lack of presence in immunotherapies will temper growth Excluding Ono, Japan Pharma’s absence from the immuno-oncology field is notable, and will temper the peer set’s growth, althoughOtsuka has signed an agreement to co-promote Keytruda in Japan. Japan Pharma’s focus on niche oncology patient populations Japan Pharma has focused on designing precision medicines that target specific sub-populations of cancer patients, attracted by thehigh unmet need and high prices that can be charged for niche oncology drugs. This strategy is often biomarker-driven, usingbiomarker expression patterns of tumor types to identify patients more likely to benefit from a certain therapy and improve thelikelihood of regulatory approval. Of the nine oncology assets that are set to launch over the forecast period, eight have been developed using biomarker-drivenapproaches, adding approximately $1.3bn to Japan Pharma’s oncology revenue. Takeda’s Alunbrig will lead this group, havingreceived accelerated approval for use in ALK-positive metastatic NSCLC, as it reaches $457m by 2027*. However, this approach hasalso had mixed success, and notable trial failures have tempered the growth of Japan Pharma’s oncology portfolio. Daiichi Sankyo’soutlook has been cut after Phase III trial failures, and the company recently discontinued the development of MET-targeting tivantiniband HER3-targeting patritumab. Japan Pharma’s refocusing on oncology has had mixed success In recent years, Japan Pharma has refocused resources and investments on oncology to drive long-term growth amid pressures ofdeclining sales and domestic headwinds. Apart from Mitsubishi Tanabe, Japan Pharma companies have highlighted oncology as astrategic therapy area for expansion and development. Traditionally, oncology has been a focus for Takeda, Astellas, and Ono.However, Daiichi Sankyo, Eisai, and Otsuka have also invested heavily in R&D and acquisitions in recent years to expand theirpresence in the oncology market.

LENVIMA WILL FUEL STRONG GROWTH FOR EISAI’S ONCOLOGY PORTFOLIO Eisai has been steadily growing its oncology portfolio through a combination of M&As, in-licensing, and internal R&D, andPharmaVitae expects the company to benefit from such investments and show a strong CAGR of 3.0% out to 2027*. The company’sinternal R&D has so far yielded Eisai’s key growth product Lenvima, which was approved by the FDA for thyroid cancer in February2015, as well as breast cancer drug Halaven.

Opdivo has transformed Ono’s outlook, and for the first time the company is challenging the traditional standing among JapanPharma companies.

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Opdivo will see strong uptake in Japan in the gastric cancer and hepatocellular carcinoma settings. However, Ono’s Opdivorevenues have been checked by the success of rival Keytruda (pembrolizumab; Merck & Co) in the non-small cell lung cancer(NSCLC) setting, as well as Opdivo being subject to two dramatic price reductions of approximately 50% in October 2016 and24% in April 2018.

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Eisai has benefited from deals in 2007 for MGI Pharma for $3.9bn and Morphotek for $325m (Eisai, 2007; 2008), and iscurrently the only Japan Pharma company with two products developed in-house and launched in the US market.

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GROWTH OF DAIICHI SANKYO’S ONCOLOGY PORTFOLIO WILL DISAPPOINT Daiichi Sankyo has refocused its resources on oncology as it aims to counter sales decline from its cardiovascular portfolio.However, after clinical setbacks, the portfolio will add only $341m by 2027*. Daiichi Sankyo’s focus on strengthening its oncologypipeline has been a priority since 2008 – in over nine years, the company has made four major acquisitions, three of which have beenfocused on expanding the oncology portfolio. The company has also announced an aim of JPY300bn (approximately $2.7bn) inrevenue contribution in 2025* from its total oncology portfolio (Daiichi Sankyo, 2016).

OTSUKA WILL SUCCESSFULLY MITIGATE GENERIC HEADWINDS AS NEWER PRODUCTS CONTINUE THEIR UPTAKE Otsuka’s oncology portfolio will experience growth at a CAGR of 0.4% out to 2027* as the company successful negotiates a transitionfrom older products in its portfolio, with six of its key oncology products set to face generic competition over the forecast period.

SUMITOMO DAINIPPON’S ONCOLOGY PORTFOLIO LAUNCH WILL BE UNIMPRESSIVE Sumitomo Dainippon’s entry into the oncology market in 2019 with the launch of alvocidib in AML will disappoint, and will fail tooffset declining CNS and cardiovascular sales. Sumitomo Dainippon has grown its oncology therapy area through large investmentsand M&A activity. The company acquired Boston Biomedical in April 2012 and Tolero Pharmaceuticals in January 2017 in deals worth(including milestone payments) up to $2,630m and $780m, respectively (Sumitomo Dainippon, 2012; 2017a). However, diversificationinto oncology will disappoint as clinical setbacks mean the oncology portfolio will add only $131m to Sumitomo Dainippon’s top line

Eisai’s oncology revenue was worth $1,165m in 2017*, but is set to stall in 2018* with the entry of generic competitors to Aloxi.PharmaVitae expects the company to return to growth in 2019* as Eisai oversees label expansions for Lenvima in hepatocellularcarcinoma and renal cell carcinoma. These label expansions will drive oncology sales to peak in 2023* at $1.7bn. However, outto 2027*, sales will again fall with the loss of market exclusivity for Halaven.

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However, investment has largely fallen flat after recent developmental setbacks. The failures of two oncology biomarker-drivenprograms, patritumab and tivantinib, as well as weak data for Onzeald (etirinotecan pegol) and pexidartinib, have underminedthe company’s ambitions and late-stage pipeline.

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Daiichi Sankyo’s oncology emphasis will now instead refocus on its pipeline of early-stage compounds targeting acute myeloidleukemia, as well as its ADC technology. However, with Daiichi Sankyo’s flagship ADC asset, DS-8201, only just entering pivotalPhase II studies, the company’s oncology offering has much left to do before it can compensate for declining revenues andbecome a growth driver.

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Products facing generic competition include mainstays TS-1 ([gimeracil + oteracil potassium + tegafur]) for cervical cancer,Abraxane (albumin-bound paclitaxel), and Aloxi for chemotherapy-induced nausea and vomiting. However, Otsuka will offsetdeclining revenue through continued expansion of Lonsurf ([trifluridine + tipiracil]) for colorectal cancer and the launch of SGI-110 (guadecitabine) for acute myeloid leukemia (AML) in 2019.

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Lonsurf and SGI-110 will be the two main growth drivers in Otsuka’s oncology portfolio, adding approximately $640m and$300m to topline revenue out to 2027*, respectively.

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Otsuka prepared for this transition when it acquired Astex in 2013 for $886m (Otsuka, 2013), obtaining SGI-110 among a richpipeline of oncology products that will ensure the company successfully mitigates these generic headwinds.

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by 2027*, thus failing to compensate for the revenue loss from generic competition to the company’s top product, Latuda, in 2024.

Japan Pharma will continue to use licensing deals in oncology to boost domesticrevenues Japan Pharma has historically in-licensed products into the Japanese market to promote domestic revenue, and thisstrategy holds true in the oncology therapy area. Traditionally, Japan Pharma has utilized its strong domestic infrastructure to secure in-licensing deals for leading brands. Between2008 and 2017, Japan Pharma made over 191 alliance deals in oncology, approximately 45 more than in CNS, and in 2017* partneredoncology therapies were worth $5.65bn. PharmaVitae anticipates that Japan Pharma will continue to in-license innovative oncologyassets to fully realize the market opportunity for oncology. PharmaVitae has observed a marked surge in deals made by Japan Pharmain recent years focused on the key oncology therapy types of kinase inhibitor, immunotherapy, ADC, and cell therapy (see figurebelow).

Sumitomo Dainippon obtained alvocidib through its Tolero acquisition, and is aiming for accelerated approval in the US forMCL-1-positive relapsed/refractory AML during 2018*. However, the small MCL-1-expressing target population will restrictrevenues.

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High hopes for first-in-class napabucasin have faded after a series of clinical setbacks in gastric cancer and NSCLC patients, andPharmaVitae forecasts revenue to be limited to $86m. These clinical setbacks will limit napabucasin use to later therapy lines asa combinational anti-tumor agent for pancreatic and colorectal cancer patients.

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CENTRAL NERVOUS SYSTEM: ANALYSIS AND TRENDS CNS was Japan Pharma’s largest therapy area in 2017*, contributing $10.5bn in revenues, and is set to grow to $14.8bn by 2023*.However, sales will then decline to $14.1bn in 2027* with the expiries of key products, and subsequently this late decline will widenthe gap to the largest therapy area, oncology, to $3bn by 2027*. Japan Pharma will maintain its core focus within psychiatry andneurodegenerative disorders as companies look to expand their presence in these areas using innovative technologies. Althoughgenericization is a key headwind for the area, there remain significant unmet needs across a range of indications – Japan Pharmatherefore is expected to continue to invest shrewdly to capture such opportunities, and CNS will remain a key therapy area for thepeer set throughout the forecast period.

Figure 24: Japan Pharma alliance deals involving key oncology therapy types, 2008–17


As an example, recently announced deals include Takeda’s in-licensing of Tesaro’s Zejula (niraparib) and Exelixis’s Cabometyx(cabozantinib) for commercialization in Asian nations (Takeda, 2017a/b); Otsuka co-promoting Merck & Co’s Keytruda (Otsuka,2016); and Daiichi Sankyo in-licensing Kite Pharma’s (now Gilead’s) CAR-T candidate Yescarta (axicabtagene ciloleucel) in Japan(Daiichi Sankyo, 2017c).

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Table 12: Japan Pharma CNS sales, by company ($bn), 2017–27*

Rank Company

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

2017–27CAGR

1 Otsuka 2.5 2.8 3.1 3.3 3.8 4.3 4.8 5.0 4.7 4.6 4.6 2.0 6.1%

2 Eisai 1.2 1.2 1.3 1.3 1.3 1.5 1.7 2.1 2.5 2.9 3.1 2.0 10.5%

3 SumitomoDainippon

2.4 2.5 2.8 3.0 3.1 3.3 3.4 2.4 2.2 1.9 1.8 -0.6 -2.8%

4 Takeda 1.4 1.6 1.6 1.7 1.8 1.8 1.9 1.9 2.0 2.0 1.7 0.2 1.4%

5 Mitsubishi Tanabe

1.2 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.1 1.0 -0.1 -1.0%

6 DaiichiSankyo

0.9 0.9 0.8 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.9 0.1 0.7%

7 Shionogi 0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.1 2.7%

8 Astellas 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -0.1 -4.2%



Table 12: Japan Pharma CNS sales, by company ($bn), 2017–27*

9 KyowaHakkoKirin

0.1 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 -1.3%

10 Ono 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 -7.9%

Grand total 10.5 11.5 12.0 12.5 13.1 14.0 14.8 14.6 14.4 14.5 14.1 3.6 3.0%






Otsuka’s growth will outperform the peer set and carry the CNS therapy areaagainst generic headwinds PharmaVitae forecasts Otsuka to extend its CNS leadership position, growing by $2.0bn over the forecast period.

COMPANY PERFORMANCES

Otsuka’s attained portfolio will drive impressive long-term growth The addition of Avanir’s products to Otsuka’s portfolio will add significant value, complementing its existing strengths with AbilifyMaintena (aripiprazole) and Rexulti (brexpiprazole).

Japan Pharma will remain focused on psychiatric diseases Japan Pharma will remain highly focused on psychiatric diseases as Alzheimer’s disease is set to overtake schizophrenia to becomethe largest CNS indication in the Japan Pharma peer set.

Otsuka will benefit from a strong portfolio of marketed and pipeline CNS drugs brought in through its acquisition of AvanirPharmaceuticals in 2015 that will offset ongoing losses from its former blockbuster Abilify.

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Second-placed Sumitomo Dainippon will concede its position to Eisai as the company will lose approximately $590m owing tothe decline of its leading antipsychotic product Latuda.

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Eisai will initially experience flat growth as continued support of its epilepsy portfolio mitigates ongoing generic erosion ofAlzheimer’s disease gold-standard Aricept and pain treatment Lyrica (pregabalin). Nevertheless, Eisai’s long-term growth outlookis very positive as the company is well positioned with its collaboration with Biogen to pioneer the next generation of Alzheimer’sdisease therapies, with aducanumab set to launch in 2021 and reach over $1.8bn in sales for Eisai.

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Mitsubishi Tanabe will marginally decline owing to generic erosion of Gilenya and royalty revenues from Novartis, while DaiichiSankyo will grow at a 0.7% CAGR driven by uptake of its analgesics franchise.

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Excluding Otsuka and Eisai’s aducanumab, Japan Pharma’s CNS therapy portfolio will contract by $344m out to 2027* ascompanies’ legacy products continue to face generic and competitive headwinds.

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Otsuka’s revenue will peak in 2024* at $5.0bn, after which the expiry of Abilify Maintena will impact sales. In the CNS therapyarea, Otsuka will have two of the top five grossing products in 2027*.

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Otsuka attained the previously approved Nuedexta, next-generation potential blockbuster AVP-786, and investigational OnzetraXsail (sumatriptan) in its $3.5bn deal for Avanir Pharmaceuticals in January 2015 (Otsuka, 2015). These drugs will add $1.7bn toOtsuka’s topline revenue, and will build on a strong CNS foundation at Otsuka where the atypical antipsychotics Abilify Maintenaand Rexulti, both developed in collaboration with Lundbeck, continue to gain uptake in their respective psychiatric disorders.

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Schizophrenia – Schizophrenia will lose its position as the top-grossing primary disease in Japan Pharma’s CNS portfolio in•




Japan Pharma shrugs off industry failures in search of a potential lucrativebreakthrough in Alzheimer’s disease Alzheimer’s disease is notoriously difficult to target, with only four compounds approved including Eisai’s Aricept (donepezil), andAllergan’s and Daiichi Sankyo’s Namenda XR (memantine hydrochloride). These approved brands are now off-patent, and salescontinue to be impacted by generics.

EISAI’S PIPELINE OFFERS INNOVATION AND A BREAKTHROUGH IN ALZHEIMER’S DISEASE Eisai has a lucrative opportunity to pioneer the next generation of Alzheimer’s disease therapies that focus on preventing theprogression of neurodegeneration, through its collaboration with Biogen for four pipeline candidates. The collaborative dealsignificantly empowers Eisai’s CNS pipeline, and promises to become a significant wealth generator if successful in preventing theneurodegeneration of Alzheimer’s disease. The main focus is on aducanumab, which is the first amyloid-beta-targeting drug to showimprovements on both cognitive and functional endpoints in patients with early Alzheimer’s disease. PharmaVitae believes that ifsuccessful in the Phase III ENGAGE and EMERGE trials, aducanumab could become a $13bn drug globally by 2033*.

AVP-786 HAS POTENTIAL TO ADDRESS A SIGNIFICANT UNMET NEED AMONG ALZHEIMER’S DISEASE PATIENTS Otsuka is testing AVP-786 specifically in patients who suffer from agitation related to Alzheimer’s disease, a large market with a highunmet medical need where presently there are no FDA-approved drugs, and PharmaVitae believes it could reach sales of $1.2bn by2027*. It is estimated that of the 4 million Americans with Alzheimer’s disease, up to 50% exhibit agitation symptoms includingaggression, combativeness, shouting, hyperactivity, and disinhibition (GMHF, 2016).

favor of Alzheimer’s disease and MDD. In 2017*, schizophrenia was the top-grossing indication in Japan Pharma’s CNS portfolio,generating $3.1bn. However, schizophrenia will be the largest growth resistor over the forecast period, as sales continue to beimpacted by ongoing generic erosion of Otsuka’s Abilify and the late patent expiry of follow-on depot Abilify Maintena andSumitomo Dainippon’s Latuda in 2024.

Depression – MDD will rise to second as the uptake of Takeda’s Trintellix (vortioxetine) and Otsuka’s Rexulti more than offsetthe decline in Japan of the older antidepressant products Lexapro (escitalopram; Allergan/Lundbeck/MitsubishiTanabe/Mochida) and Cymbalta (duloxetine; Eli Lilly/Shionogi).

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Alzheimer’s disease – Alzheimer’s disease will grow to become Japan Pharma’s largest CNS indication, primarily driven by thelaunch of Eisai’s aducanumab as the first disease-modifying therapy to delay the onset of dementia.

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Other CNS disorders – Pain will be the largest growing CNS indication over the forecast period, at a CAGR of 55.3%, driven byuptake of Daiichi Sankyo’s portfolio of next-generation and abuse-deterrent analgesics. Meanwhile, epilepsy will remainprominent as Eisai and Sumitomo Dainippon maintain their presence in the indication, although epilepsy will lose over $230m insales over the forecast period. Japan Pharma’s presence in multiple sclerosis will also diminish, impacted by generic erosion ofMitsubishi Tanabe’s Gilenya sales and royalties from 2019.

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Pipeline focus on Alzheimer’s disease – Encouraged by past successes and pressured by Japan’s aging population, JapanPharma companies such as Eisai, Otsuka, and Takeda continue to develop therapies targeted at Alzheimer’s disease. Anysuccessful treatment has the potential to disrupt the Alzheimer’s disease market, and could become a lucrative cash generator.However, with a high failure rate, these therapies remain extremely high-risk assets (Financial Times, 2017).

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CARDIOVASCULAR: ANALYSIS AND TRENDS The cardiovascular market for Japan Pharma is set to decline out to 2027* as generic headwinds will erode key brand sales, andPharmaVitae forecasts each company to decline on average by $0.2bn over the forecast period. The cardiovascular therapy area willlose its position as the third largest therapy area for Japan Pharma, being superseded by immunology and inflammation in 2018*. Thecardiovascular market’s contribution to total Japan Pharma sales dropped from 17.5% to 13.0% over 2014–17*, and PharmaVitaeexpects this to continue to decline to 9.0% in 2027* as sales fall by another $1.9bn.

PharmaVitae believes that the chance of success in this therapy area is higher for AVP-786 than for Nuedexta because of theformer drug’s deuterated formulation of dextromethorphan, which is slower to decompose.

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Results from a Phase II study of Nuedexta showed that it was associated with significantly reduced agitation as measured by theagitation/aggression domain score of the Neuropsychiatric Inventory (primary endpoint) compared to placebo, and PharmaVitaebelieves that AVP-786 could produce similar results in Phase III trials.

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Table 13: Japan Pharma cardiovascular sales, by company ($bn), 2017–27*

Rank Company

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

2017–27CAGR

1 DaiichiSankyo

3.1 2.8 2.7 2.6 2.7 2.7 2.7 2.8 2.8 2.8 2.3 -0.8 -3.0%

2 Takeda 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.3 1.1 1.0 -0.5 -3.7%

3 Otsuka 0.5 0.5 0.5 0.5 0.5 0.6 0.7 0.8 0.8 0.9 0.9 0.4 5.5%

4 Mitsubishi Tanabe

0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.2 4.5%

5 Shionogi 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.0 1.1%

6 SumitomoDainippon

0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 -0.2 -3.7%

7 Astellas 1.3 1.0 0.9 0.9 0.9 0.6 0.4 0.3 0.3 0.2 0.2 -1.0 -15.5%

8 Eisai 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.0 0.4%



Table 13: Japan Pharma cardiovascular sales, by company ($bn), 2017–27*

9 Ono 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 -0.1 -5.0%

10 KyowaHakkoKirin

0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.0 -14.6%

Grand total 8.20 7.24 7.10 7.06 7.17 7.09 7.07 7.15 6.96 6.88 6.25 -1.9 -2.7%






Daiichi Sankyo will maintain its market leadership despite a sharp decline inrevenue Daiichi Sankyo will maintain its leadership position of the cardiovascular therapy area despite its cardiovascular revenues falling by$0.8bn over the forecast period.

COMPANY PERFORMANCES

Japan Pharma will lose its global position in the cardiovascular space PharmaVitae anticipates Japan Pharma to continue its slide at a CAGR of -2.7% during 2017–27*. Japan Pharma’s cardiovascularpresence peaked in 2012* at $1.85bn in average company revenue. Hypertension

The entry of generic competition to Daiichi Sankyo’s leading olmesartan franchise in Q4 2016 will contribute approximately$1.0bn to the decline of the company’s cardiovascular revenues. The olmesartan product franchise remains the highestgrossing revenue source for Daiichi Sankyo in 2017*, despite $630m having been already lost to generics. PharmaVitaeforecasts the olmesartan franchise to become the third largest resistor across all therapy areas within the Japan Pharma peerset, declining by $950m, and the continued uptake of Savaysa/Lixiana as an anti-coagulant will be insufficient to offset decliningsales. Nevertheless, cardiovascular will remain a core therapy area for Daiichi Sankyo, generating the largest proportion (33.7%)of company sales in 2027.

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Astellas’s cardiovascular revenues will decline by $1.0bn over the forecast period, dropping multiple positions and losing itssecond-place position to Takeda. Astellas’s cardiovascular decline will be attributed to the impact of ongoing erosion of Micardisand of the pharmacologic vascular stress testing agent Lexiscan (regadenoson) from 2022*. Takeda will also decline, but to alesser degree, as the angiotensin II receptor antagonist Azilva (azilsartan) succumbs to generic competition in 2025*.

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Otsuka and Mitsubishi Tanabe stand to experience the highest CAGRs during the forecast period, becoming the third- andfourth-largest players in the cardiovascular market, respectively. Both companies will gain from a new class of hypoxia-induciblefactor prolyl hydroxylase inhibitors (HIF-PHIs) that will drive growth and offset losses from older cardiovascular products.

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Table 14: Japan Pharma hypertension sales, by company ($bn), 2017–27*

Rank Company

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

2017–27CAGR

1 Takeda 0.88 0.90 0.92 0.93 0.93 0.93 0.93 0.93 0.65 0.50 0.41 -0.46 -7.2%

2 DaiichiSankyo

1.38 0.86 0.68 0.55 0.48 0.45 0.43 0.41 0.40 0.40 0.39 -0.99 -11.8%

3 Mitsubishi Tanabe

0.17 0.13 0.12 0.12 0.12 0.11 0.11 0.11 0.10 0.10 0.10 -0.07 -5.1%

4 SumitomoDainippon

0.36 0.24 0.21 0.17 0.15 0.13 0.12 0.12 0.11 0.11 0.10 -0.25 -11.8%

5 Shionogi 0.14 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.04 0.04 0.04 -0.10 -11.7%

6 Astellas 0.43 0.17 0.11 0.07 0.06 0.05 0.04 0.04 0.03 0.03 0.03 -0.40 -23.1%

Grand total 3.34 2.37 2.09 1.88 1.78 1.71 1.67 1.64 1.33 1.17 1.08 -2.27 -10.7%






NEW PRODUCT LAUNCHES WILL FAIL TO REVERSE GENERICIZATION OF KEY BRANDS PharmaVitae forecasts hypertension sales for Japan Pharma to decline at a CAGR of -10.7% throughout the forecast period. JapanPharma will lose its leading position in the hypertension market as approximately $2.3bn is lost from sales owing to the impact of keypatent expiries and a lack of pipeline drugs to offset losses in the portfolio.

The patent expiry of Daiichi Sankyo’s olmesartan franchise will be the largest growth resistor within the hypertensionindication.

•

Ongoing generic erosion will also impact Astellas’s Micardis, Takeda’s Azilva, and Sumitomo Dainippon’s Amlodin(amlodipine).

•

Sumitomo Dainippon’s approved Aimix ([amlodipine besylate + irbesartan]) and Daiichi Sankyo’s pipeline candidateesaxerenone will be the only growth drivers in the portfolio, but will fail to improve the overall negative outlook.

•

Angiotensin II receptor blockers, which will continue to dominate Japan Pharma’s hypertensive portfolio, will decline by 67.7%over the forecast period as the market becomes increasingly genericized.

•




LIFECYCLE ANALYSIS PharmaVitae forecasts a difficult 2017–27* period for Japan Pharma as a pending patent cliff is set to drastically impact revenues.Nevertheless, product launches will offset these losses and maintain a positive outlook for the peer set. PharmaVitae Analyticssegments a company’s product portfolio into three categories based on product lifecycle position:

The distribution of changes in annual product sales between 2017–27* across these categories can be used to dissect the driversand resistors behind a company’s growth prospects. Typically, launch products will generate high growth rates as they penetrate theaddressable market, making a positive contribution to the change in annual sales between 2017–27*. In contrast, expiring products, ifsubject to generic competition, will experience a rapid sales decline, with the consequence that the expiry category will often make anegative contribution to the change in annual sales between 2017–27*. The core category can make either a positive or a negativecontribution to the change in annual sales between 2017–27*, depending on the sales performance of the core marketed portfolio.

LIFECYCLE PERFORMANCE

Core – Branded products that neither launch nor expire between 2017–27*.•

Expiry – Branded products expiring (losing patent protection) between 2017–27*.•

Launch – Branded products launching between 2017–27*.•

Figure 25: Japan Pharma peer set revenues by lifecycle position, 2017–27*


In 2017*, Japan Pharma’s core portfolio accounted for 52.7% of its revenue, generating approximately $33.1bn. Over theforecast period, core product revenue will decline by $2.0bn, to 44.9% of total sales in 2027*.

•

In 2017*, Japan Pharma’s expiry portfolio accounted for approximately 47.1% of total revenues, and was worth approximately$30bn. By 2027*, $2.9bn will be wiped from Japan Pharma’s expiry portfolio, declining at a -1.0% CAGR. However, this decline willbe successfully offset by Japan Pharma’s launch portfolio, which will add $11.4bn in revenue out to 2027*.

•




Astellas, Kyowa Hakko Kirin, and Sumitomo Dainippon have the greatest exposure to generic competition, and are set to lose themost value in their expiry portfolios over the forecast period.

The table above shows the lifecycle weightings of Japan Pharma companies.

Astellas will have the largest launch portfolio, but will fail to offset the loss of expiry revenues.•

Eisai’s and Otsuka’s outlook will be carried by their strong launch portfolios.•

Daiichi Sankyo’s core portfolio will weigh down its outlook, affected by the ongoing generic erosion of its olmesartan franchise.•

Otsuka, Eisai, and Takeda are also all well positioned, with their expiry revenue set to grow over the forecast period.•

Figure 26: Japan Pharma lifecycle revenue weighting, 2017–27*


In 2017*, Astellas and Sumitomo Dainippon were heavily exposed to generic competition, with 69.1% and 53.6% of theirrespective total revenues deriving from their expiry portfolios. This will drop to 57.8% and 40.2% by 2027*, respectively, partiallydue to each company’s strong launch portfolios.

•




Core and expiry revenue overview Out to 2027*, $4.8bn is expected to be wiped from Japan Pharma’s core and expiry portfolios as notable blockbuster brands facegeneric competition. Astellas and Daiichi Sankyo will bear the brunt of these losses of market exclusivity, and are set to lose 29.3%and 26.2% of their marketed drug portfolio values, respectively. Kyowa Hakko Kirin and Sumitomo Dainippon are also highlyexposed, being set to lose 46.3% and 22.5% of their current marketed portfolio values.

MID-TERM LOSS OF EXCLUSIVITY The peer set’s mid-term growth will be limited by patent expiries, as most Japan Pharma companies (except Sumitomo Dainipponand Shionogi) are expected to be impacted by generic competition to at least one key brand during 2017–20* (see figure below).

The impact of forthcoming expiries is clear by 2020*, with patent expiries set to wipe off more than $8.6bn from Japan Pharma’ssales.

Kyowa Hakko Kirin is also highly exposed to generics, with its expiry portfolio revenue set to drop by the largest proportion oftotal revenue over the forecast period (-33.6 percentage points) among the peer set.

•

Ono and Takeda’s growth outlooks will be fueled by their strong core portfolios, with only 5.2% and 3.6% of their 2027* totalrevenues, respectively, deriving from their launch portfolios.

•

Eisai’s outlook is heavily reliant on the success of its launch portfolio, accounting for the largest proportion in the peer set andcontributing 34.0% to its total revenue by 2027*.

•

Exposure to generic erosion – Japan Pharma continues to feel pressures from patent expiries surrounding formerblockbusters. Furthermore, PharmaVitae predicts that the Japan Pharma peer set will struggle to maintain its current marketposition in key markets, since many lucrative products will be hit by patent expiries by the end of 2020*.

•

Hard-hitting generic effect – The effect of generics on product sales has been intensified by government measures to promotetheir use as a cost-containment tool within Japan’s healthcare system (see the Introduction chapter). Japan Pharma’s ability tomitigate generic headwinds will be determined by the success of lifecycle management strategies and new product launches.

•

Gilenya, Velcade, and Vesicare are all examples of major Japan Pharma brands that will suffer US patent expiry by 2019.•

These brands will follow a similar downward path to longer-listed expired brands such as Abilify, Aricept, Actos, Crestor, theolmesartan franchise, and Prograf/Astagraf XL.

•

Astellas’s expiry revenue is set to fall by the largest amount out to 2020*, down over $2.4bn, as it continues to be impacted bythe generic erosion of longer-listed products Lipitor and Prograf/Astagraf XL, as well as by the recent launch of Micardisgenerics in Q2 2017, and with Vesicare generics expected in Q2 2019.

•

Daiichi Sankyo will be severely affected after its olmesartan franchise of hypertensive products lost market exclusivity in the USin Q4 2016. PharmaVitae forecasts the olmesartan franchise to be the largest growth resistor in the Japan Pharma peer set,declining by over $1.2bn out to 2027*.

•




PharmaVitae expects Kyowa Hakko Kirin to be negatively impacted by ongoing and pending generic competition to its currentmarketed portfolio. The company is in decline after being pressured by generics to minor brands, and this pressure is expectedto intensify with the losses of exclusivity of NESP, Gran (filgrastim), and Regpara (cinacalcet) during 2018–19, with key brands setto lose 25.2% ($640m) of Kyowa Hakko Kirin’s total 2017* value by 2020*.

•

Sumitomo Dainippon is set to benefit from a recent US appeals court ruling that upheld its ‘372 substance patent on its top-selling depression drug Latuda (Sumitomo Dainippon, 2018). Generics were originally set to launch in Q1 2019, threateningSumitomo Dainippon’s outlook, with Latuda accounting for 38.3% of the company’s total revenues in 2017*. A decision onanother ‘827 patent is still pending, but market exclusivity in the US is expected to be maintained until 2024, securing a keyrevenue stream and delaying a severe patent cliff for the company.

•

Takeda, like many of its counterparts, will become a victim of its own success after many of its major brands have lost patentprotection. Takeda continues to be affected by the loss of Actos, Blopress, and Takepron, which collectively contributed to a$7.2bn decline during 2011–16*. The most recent major brand to go off-patent in the US was Velcade in Q4 2017, and it isforecast to decline by $1.1bn over the forecast period.

•




Figure 27: Japan Pharma’s loss of market exclusivity portfolio, 2014–20*





PIPELINE ANALYSIS

JAPAN PHARMA PIPELINE OVERVIEW PharmaVitae expects Japan Pharma’s late-stage pipeline to add approximately $11.4bn in revenues by 2027*, with oncology and CNSset to remain the focus areas of the peer set’s pipeline throughout the forecast period. However, headwinds threaten Japan Pharma’spipeline as domestic sales temper R&D investment, and government measures could limit innovation incentives and rewards.

Late-stage pipelines Takeda boasts the largest pipeline in the Japan Pharma peer set, followed shortly behind by Daiichi Sankyo and Eisai. Shionogi andMitsubishi Tanabe will have the weakest pipelines with only 21 pipeline drugs between them. It is important to note that this analysisonly includes lead partners, and not partnered or in-licensed programs which are traditionally a large part of Japan Pharma’s strategy.Otsuka and Sumitomo Dainippon have the joint highest number of drug indications (seven) at Phase III or registrational stage, whileShionogi has the lowest with just two.

COMPANY LAUNCH PORTFOLIOS

Figure 28: Japan Pharma’s pipeline overview ranking, June 2018




Table 15: Japan Pharma launch portfolio sales, by company ($m), 2017–27*

Rank Company

No ofdruglaunches

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Δ2017–27

$m /druglaunch

1 Astellas 8 28 174 444 787 1,224 1,735 2,178 2,469 2,617 2,646 2,650 2,622 328

2 Eisai 7 0 19 38 84 169 393 727 1,199 1,680 2,058 2,277 2,277 325

3 Otsuka 6 0 26 59 151 469 827 1,235 1,626 1,952 2,147 2,249 2,249 375

4 SumitomoDainippon

4 0 12 74 176 298 447 607 733 819 861 870 870 218

5 KyowaHakkoKirin

2 0 37 117 225 376 510 617 688 726 745 751 751 376

6 DaiichiSankyo

7 0 19 70 156 265 391 512 605 660 698 714 714 102

7 Shionogi 3 28 140 205 287 372 458 529 582 619 647 668 640 213



Table 15: Japan Pharma launch portfolio sales, by company ($m), 2017–27*

8 Takeda 3 25 63 101 179 271 375 480 551 593 611 617 592 197

9 MitsubishiTanabe

2 0 0 0 3 68 159 273 390 458 490 495 495 248

10 Ono 3 31 52 64 80 102 123 146 167 182 192 198 167 56

Grand total 45 112 542 1,173 2,129 3,613 5,417 7,303 9,009 10,307 11,095 11,489 11,377 253






Top 10 pipeline products Eisai’s aducanumab is anticipated to become the largest pipeline product, generating $1.9bn by 2027*.•

AVP-786 will be the second largest as it launches as a treatment for agitation symptoms associated with Alzheimer’s disease.•

Repatha will be the only in-licensed product in the list, with Astellas in-licensing the product from Bristol-Myers Squibb in Japan.•



Table 16: Top 10 Japan Pharma pipeline sales, by brand ($m), 2017–27*

Rank Drug Genericname

Primarytherapy area

Primaryindication

Company 2017 2022 2027 Δ2017–27 CAGR fromfirst launchyear to 2027

1 aducanumab aducanumab Centralnervoussystem

Alzheimer’sdisease

Eisai 0 191 1,881 1,881 50.3%

2 AVP-786 deuterium-modifieddextromethorphan

Centralnervoussystem

Alzheimer’sdisease

Otsuka 0 363 1,202 1,202 67.3%

3 roxadustat roxadustat Metabolic Anemia Astellas 0 613 1,150 1,150 47.2%

4 Crysvita burosumab Otherendocrine,metabolic, andgeneticdisorders

Otherendocrine,metabolic, andgeneticdisorders

Kyowa HakkoKirin

0 383 592 592 38.4%

5 Alunbrig brigatinib Oncology Non-small celllung cancer

Takeda 25 275 463 438 33.9%



Table 16: Top 10 Japan Pharma pipeline sales, by brand ($m), 2017–27*

6 dasotraline dasotraline Centralnervoussystem

Attentiondeficithyperactivitydisorder

SumitomoDainippon

0 222 414 414 42.5%

7 vadadustat vadadustat Cardiovascular Anemia Otsuka 0 117 412 412 50.3%

8 Repatha evolocumab Metabolic Dyslipidemia Astellas 15 302 397 382 38.8%

9 Xofluza baloxavirmarboxil

Infectiousdiseases

Influenza Shionogi 22 267 387 365 33.2%

10 solifenacin/mirabegron

solifenacin/mirabegron

Genitourinary Overactivebladder

Astellas 0 236 350 350 41.3%






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https://www.takeda.com/newsroom/newsreleases/2017/Takeda-Completes-Acquisition-of-ARIAD-Pharmaceuticals-Inc/

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https://www.takeda.com/siteassets/system/investors/report/quarterlyannouncements/fy2016/fy-2016-q4-announcements-released-on-may-10-2017/qr2016_q4_p01_en.pdf

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https://esa.un.org/unpd/wpp/DataQuery/



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http://apps.who.int/iris/bitstream/10665/255336/1/9789241565486-eng.pdf?ua=1

www.datamonitorhealthcare.com

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Company · 96 PIPELINE ANALYSIS 96 Japan Pharma pipeline overview 96 Company launch portfolios 102...

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